37 Tips, Facts, and Rules For Trading Stocks in a Bear Market

This list is inspired by the recent stock market tumble which has seen the S & P 500 fall more than 8% in less than a month. Included in the list are some fun facts about bears as well which are highlighted in bold.

If you enjoy this list, there are several more you may like.

  1. Sell everything by moving to 100% Cash.
  2. If buying on breakouts, take any profits quickly.
  3. The biggest black bear ever found was 880 pounds.
  4. Don't trust ratings systems, in a bear market almost everything is free game for failure.
  5. Sell all of your mutual funds.
  6. Don't buy any more mutual funds.
  7. Don't invest your life savings in the market then pull out Trading For Dummies and start reading from chapter 1.
  8. For any new positions on the buy side, use tight stops of 2 - 4% max versus a 7 or 8% standard during a regular market.
  9. Bears have smelling capabilities far greater than humans. Some bears have a nasal mucosa area about 100 larger than in humans.
  10. Don't buy into analyst recommendations.
  11. For bigger single day moves of 5% or greater, take profits the day of or the day after and walk away.
  12. No one is your friend. You are your own friend, trust only yourself.
  13. Take positions in larger defensive stocks with a high yield.
  14. Buy ETFs that are short the overall market, QID for example.
  15. Don't play the, "I have a feeling the market is done selling" game and try to catch the bottom.
  16. Remove any margined positions.
  17. Don't buy any more positions on margin.
  18. Don't take Nyquil after being on Vikatan. A buddy of mine did it in college, it is only funny for the first 30 minutes.
  19. A good lean bear can run at speeds in excees of 30 mph.
  20. Three heavy distribution days in a row for the market means go away.
  21. Three heavy accumulation days in a row for the market during a bear market means enter with extreme caution, not jump right in.
  22. When everyone realizes the market is crap and the day comes that even CNBC is saying the market is in a bear, that is the time to start looking for buying opportunities.
  23. An option in Wall Street terms is not the same as in football.
  24. It is a fact that three out of four stocks follow the overall market trend.
  25. Hedge your risk by buying options.
  26. If your broker can't send over a list of all of your current positions and tell you your exact account status he shouldn't be your broker.
  27. Some bears will hibernate for over 7 months of the year.
  28. If you are new trader, understand this is not the time to be getting your feet wet to "see what happens". Being on the sidelines for a few more months won't kill you.
  29. A profit is a profit regardless of how small.
  30. After ten consecutive heavy sell off days in a row, go down to Wall Street on the first up day and yell with arms flailing, "The bull is back, the bull is back!!" I guarantee you will drive buying and help a few hundred more people lose even more money over the next few weeks.
  31. It is a fact that during the 2000 - 2002 crash the whole way down analysts were making more 10x more buy recommendations than sell recommendations on stocks.
  32. The bigger your ego before the bear market, the greater the fall during the bear market.
  33. Bears are good swimmers, one recorded swim was for more than 9 miles in the Gulf of Mexico.
  34. During the 2000-2002 crash multi millionaires were made by selling stocks short on weakness.
  35. In case you were confused about 24, this means that every day the market ends red, 3 out of 4 stocks close in the red as well.
  36. Typically the biggest market leaders during a bull market are some of the biggest sellers during a bear market.
  37. If you ever are attacked by a bear, your best chance for survival is to play dead.

Comments

  1. Posted by The Financial Blogger on August 17, 2007 at 1:23 pm

    I would add some comments on some of your Tips/Facts/Rules

    1- I bought in March, so I am pretty much screwed! I will hold until the bear is dead and the bull comes back!

    6- I buy more mutual funds on an monthly investment plan. I gives me the opportunity to average my cost down. During the following months, I'll be able to buy more shares as well.

    25- I would also look into leaps (long term options) on bank stocks. They are usually punished by the market without valid reason. Therefore, you have a great opportunity to buy leaps with a strike price reprensenting their previous highs earlier this year for a small amount of money.

    31- Never listen to analysts period. While one says buy, the one next to him says hold (meaning sell). Then, there are not better than meteorologists!

    34- There is much more money to make on a bear market. How many times the market goes up by 10% in a week? Never. However, market will drop by 10% in almost a day. It is just a matter of knowing what you are doing.

    37- You also have a lot more chance of survival if you are driving a Hummer!

  2. Posted by Balinese on August 17, 2007 at 8:44 pm

    Nice effort to compile those list.

  3. Posted by Eric on August 18, 2007 at 8:51 pm

    Just remember - you don't have to run faster than the bear - just faster than your friend.

  4. Posted by Nabloid.com on August 18, 2007 at 9:04 pm

    "31- Never listen to analysts period. While one says buy, the one next to him says hold (meaning sell). Then, there are not better than meteorologists"

    HAHAHA, right on the money! I never pay much heed to analysts expectations...

  5. Posted by Kevin Prentice on September 13, 2007 at 8:17 am

    Very funny!

  6. Posted by Aaron on December 30, 2007 at 7:42 pm

    Neat list! I like #23 about the option in the market being different than football. I was also surprised that a bear actual swam more than 9 miles in the Gulf of Mexico!

  7. Posted by Paula Murphy on March 28, 2008 at 11:36 pm

    Browsing the website. Loved the list especially in light of my experiences over the last 7 months, funny and practical. Favorites besides raising cash are # 11 - single day moves of 5% or more take the money and run. #13 - dividends make me feel better. #29 - a profit is still a profit no matter how small - nothing like a little greed to get slaughtered in this market and when all else fails #37 - LOL

  8. Posted by Dmitriy on December 20, 2009 at 12:45 pm

    Dear Blain,
    Could you please advise what sectors are considered to be defensive in bear market?

    Thanks a lot, Dmitriy.

  9. Posted by Blain Reinkensmeyer on December 20, 2009 at 7:30 pm

    healthcare, consumer staples, utilities and telecom

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