How to Make Money in Bear and Bull Stock Markets
Making money in the stock market can be a challenge. The many conditions and fluctuations that the market goes through can cause fits for the average investor. And money made in a bull market (rising stock prices) can be easily lost in a bear market (plunging stock prices). But whether the market is going up or going down, an investor can make money if he understands how to use the tools that are available to him.
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Instructions
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Open a brokerage account with a traditional broker or with one of the many discount online brokers that are available. The choice of brokers depends on the comfort level the investor has in making all stock trading decisions themselves or whether they feel more comfortable with the help of a broker. The costs will be higher with a broker-assisted account.
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Understand what bull and bear markets are. A bull market can apply to the entire market or just a segment of the market and is characterized by a general optimism and rising of stock prices. A bear market is just the opposite.
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Define the current condition of the market. A bear market is usually characterized by widespread pessimism and falling stock prices, such as what might happen in a recession or depression. If there is a temporary drop in stock prices, after an increase of prices without a corresponding rise in unemployment and worsening economic conditions, this is usually called a correction.
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Invest in short exchange traded funds (ETFs) in bear markets. Short ETFs are funds that make investments that benefit from declining stock prices. This is a good way for the somewhat inexperienced investor to take advantage of advanced trading strategies like short selling without having to fully understand them. Also, gold and government bonds tend to be good investments in a bear market.
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Invest in long ETFs in a bull market. Long ETFs take long positions in stock which benefit from a rising stock market. Also, in a bull market, a little more risk can be taken with individual stocks with a higher price to earnings ratio. This ratio is how many times the company's total earnings a stock's current market price is trading. If a stock has earnings of $10 a share and its current market price is $100, its P/E ratio is 10. In a bull market, more chances can be taken on stocks with higher P/E ratios compared with other companies in their industry, since some of those stocks have the most growth potential in bull markets.
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