What is a Bear Market? What to Do in a Bear Market?
A bear market describes a period in which the markets are in financial trouble and prices will be in a downward trend for a long time. The term bear market comes from the move in which the bear attacks downwards with its claws. In a bear market, investors are pessimistic and sales-oriented.
The beginning and duration of the bear market are not bound by any particular rule. However , it is generally accepted that a bear market has started when the price of a financial product drops by 20% from the previous peak . During a bear market, economic growth slows, unemployment rises, sales and profitability decline.
What to do in a bear market? There is no definite answer to this question. However, some tips can be given:
- It is necessary to analyze the bear market well and not to panic. It should not be forgotten that the decreases in the market are temporary and it is important to act in accordance with the investment targets.
- It is important to manage risk and diversify the portfolio in a bear market. Distributing between different asset classes and using stop loss/take profit orders can help protect the investor.
- It is also possible to seize opportunities in a bear market. Falling prices may make some investment instruments attractive. For example, stocks of quality companies may become cheaper in the stock market. In this case, long-term investment may be advantageous.
The bear market presents an opportunity for investors to develop different strategies, even if it presents difficulties. Investors need to know the bear market well and make informed decisions.