How To Know the Bear Market Is Over and How To Prepare for It?

February 16, 2023 at 13:37 PM EST

When a market index falls by more than 20% and reduces the investment price for a prolonged period, it results in a bear market. Last year, the US stocks faced the same issue. Due to the Federal Reserve interest rate hikes, the market saw a bearish trend in May and June of 2022.

However, it’s 2023, and there isn’t much improvement in the market. That’s why every investor has the same question, how to know the bear market is over? Let’s learn more about it below:

Is There Any Way to Know that the Bear Market is Over?

Unfortunately, no. You can confirm this with any industry expert, and they’ll tell you the same thing. There might be some indicators that express possibilities, however, there’s no guarantee.

For example, some people say bear markets may end if a streak of heavy buying days suffers from a big crash. Also, there could be a possibility of some improvement if the market’s six-month moving average starts flipping to the higher side. However, things can fluctuate, and there’s no such 100% assurance.

What Needs to Happen for a Bearish Market to Turn Bullish?

A bull market occurs when the securities prices are on the rise. It usually occurs when the stock prices get higher by 20% after two consistent declines by 20%. A bull market is a golden opportunity for traders to create good wealth. There are low possibilities of loss and a good probability of higher returns.

How to Prepare and Survive a Bear Market?

Bear markets can be an unpleasant experience for investors. However, with the right strategies, you can prepare, survive and prosper in a bear market.

Before you start with it, familiarise yourself with the common investment biases and beliefs and stay away from the same.

Once you are ready, try out these strategies:

Diversify Your Investing Portfolio

Diversifying your investment portfolio means adding a variety of investments that have different risks and returns. You can indulge in several options like stocks, bonds, short-term investments, or even forex. The best benefit of forex trading is that it works wonders for both bear and bull markets. As it’s done in pairs, if one currency weakens, you can take advantage of the other currency that’s strengthening.

If you are a beginner, it’s recommended to always start from demo accounts in forex trading. That way, you’ll get familiar with the forex market and learn how things work without any risks.

Invest in Defensive Stock Sectors

Whether it’s a bear or bull market, there are certain sectors that perform well regardless of market fluctuations. And that is defensive stock sectors like household products, utilities, pharmaceuticals, and health care.

Although there’s no sector that’s completely recession-proof, these domains might be worth investing in more than others during downturns. You can also look for stocks that witness action or rise regularly and invest accordingly.

Dollar Cost Averaging

Dollar-cost averaging is a healthy investment habit that can keep your game on, even during bear markets. In this type of investing practice, you can invest a particular amount of dollars (in your portfolio) on a regular basis. It’s recommended to stay consistent with your investment, even if the share prices are high/low.

Dollar-cost averaging will help you generate a good average cost. Eventually, you’ll be able to buy fewer shares at higher prices and more shares at lower prices. Many investors have seen good results after implementing the strategy in the bear market.

Don’t Let Emotions Play With You

Bear markets can be a roller coaster ride of emotions. However, you shouldn’t let your emotions be a hindrance to your investment strategy. Rather, you should always be logical with your investment plan.

Also, you must keep adequate cash in hand to cover your essentials like food, bills, and emergency funds. Don’t lose your control and spend it all on the stocks during bear market dips.

Final Note

So, to sum up, you can’t accurately predict when the bear market will be over. There are some indicators, but there’s no assurance as such.

Meanwhile, remember that it’s not always going to be a bear market. Things may take a turn for good, and you may see a bullish trend soon. So, focus on long-term investment and do your best.

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