How to Profit in the Bull and Bear Markets
We have covered the fundamentals of bull and bear markets in the previous article. They both have pros and cons that impact traders’ and investors’ profitability. We will share effective strategies and techniques to minimize risks and maximize profits no matter what price movements are.
How to Earn Profits From Bull Markets
The bull markets indicate the consistent rise of prices in a period of time. So, the thing you should prioritise is to take advantage of the rising price actions to gain profits. The following content covers some useful recommendations that you can use in the stock markets.
Long Positions
This method is the purchase of a stock or other asset with the expectation that prices will rise. The ultimate goal is to buy securities at low prices, then sell them at higher prices. The profits are the differences between your selling and buying prices.
Call Options
A call option allows its holder to purchase a stock at a particular price/strike price with a certain expiration date. If the stock prices rises, the values of calls will increase. Thus, traders and investors can buy the stock at lower strike prices and sell it at a higher price. It is common for options traders to buy the call option in the open market and choose the favorable positions to close out.
Long ETFs
ETFs mostly follow a particular market average, including the Dow Jones Industrial (DJIA) or the Standard & Poor’s 500 Index (S&P 500). Yet, its operation is same same with stocks.
In the bull market, investors have optimism that prices will keep rising. Purchasing the same amount of ETFs with the S&P’s growth can help you increase your earnings.
Some advantages of using ETFs are the low transaction costs and operation expenses. Also, it requires no investment minimums.
How to Survive Bear Markets
A bear market shows the downtrend of stock prices, usually starting at the level of 20%, in more than two months. While bull markets comes along with economic growth, bear markets have relations to economic recessions or depressions. The situations are completely different from ideal scenarios. So, what should we do?
Short Positions
Short position, also known as short selling and shorting, means to borrow shares and sell them when there are signals of falling prices in the near future. If the share price decreases, buying those shares at lower price will cover the short position and earn profits over the differences.
Put Options
A put option allows its holder to sell a stock or any other security at a predetermined price with a certain expiration date. You have to pay a premium to have a put option.
A put option has increasing values if the stock prices drop. So, you can sell the stocks at higher strike price or sell the put option for your profits!
Short ETFs
A short ETF, a.k.a an inverse ETF, can generate returns when the bear markets dominate the price trends. For example, a short ETF performs inversely to the Nasdaq 100 will grow about 25% in value if that index drops by 25%, you can obtain profits.
In the Bottom Line
The bull and bear markets are common terms for investors and traders. Yet, learning to take advantage of the market conditions and avoid risks requires practical guides.
This article walks you through effective strategies and techniques to maintain consistent profits and undertake less risks. These approaches can help you leverage favorable market situations to earn higher profits, whether you are in bear or bull markets.
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