12 Minute Read

Tales of a Technician: How to Trade in a Bear Market

October 22, 2018

By | 1 Comment

Protect your portfolio against the next market crash. Get the Bear Market Survival Guide.

Last update: August 2021

The bears are roaming. And while their sudden emergence likely spelled losses for traders far and wide, the pain doesn’t have to persist. I look at this as a “fool me once, shame on you; fool me twice, shame on me” situation.

Heading into October, the uptrends in many market indexes were intact. So you’re forgiven if this month’s rug-pull caught you by surprise. But you are not forgiven if through your inaction further losses ensue. Perhaps the bears’ romp will be brief. Or maybe this month was just the appetizer, and a meatier (and bloodier) main course is around the corner. Either way now is as good a time as any to review a few of my favorite ideas for handling a bear market.

First, forget you yet mostly meaningless definitions. Use your head instead. Long ago someone came up with the definition of a bear market. A 20% decline, they called it. It was repeated and circulated. Round and round it went until it became dogma. When a stock peaks at $100 and then falls to $80, it’s officially entered a bear market.

Traders shouldn’t care about such arbitrary benchmarks. Instead, focus on the trend. If the daily trend is up, you’re bullish. If the daily trend is down, you’re bearish. And, well, right now the trend is down. So, you are bearish, muchacho.

Second, how you react when the market trend turns lower depends on your trading style.

The Passive Player

You own a long-term account full of stocks and such. What do you do when support gets shattered?

Well, first of all, you better be satisfied with your asset allocation. If you’re in 100% stocks, then you better be comfortable with experiencing the occasional 30+% drawdown. Because it will happen. Maybe the next one just began.

If you’re not then why, pray tell, is all your dough in stocks? Shift your allocation. More cash (it yields 2% these days, ya know), more bonds, more commodities, more stuff that’s uncorrelated. Got it?

Or

At a minimum how about you sell covered calls against your equity holdings to reduce basis, minimize volatility, and otherwise improve your odds?

Or

How about learning how to acquire put options to protect that portfolio? You can define your downside with the click of a button. Every one of these ideas is discussed in great detail in our Bear Market Survival Guide.

The Active Acrobat

If you’re an active trader playing short-term patterns such as those identified in our weekly reports, then I have a few suggestions:

  1. First, view rallies with skepticism as long as we sit below the 50-day and especially the 200-day moving averages. When the market gods turn the trend upside down the game of buying dips changes to one of selling rips.
  2. Second, cut your deltas. Swinging a big positive delta portfolio is fun when the market trend points higher is fine. Doing so when volatility is rampant, and the trend is pointing lower is rough. So don’t. Sell calls, buy puts, increase bear plays, decrease bull plays, etc…
  3. Third, the market is now guilty until proven innocent. Nobody knows how long this game of limbo will last. Every bear market starts as a 5% knee-scratch. But not every knee-scratch ends up infecting the entire market. Best to remain vigilant until the price action signals the coast is clear.
  4. Fourth, use volatility to your advantage, not detriment. Scaling-in is wise, but it’s especially so when the VIX flies north of 20.
  5. Fifth, gaps will become commonplace until said VIX retreats to the low teens. So plan accordingly and don’t act so surprised when you awake to the futures jumpin’ around like a jackrabbit.

Alright. That’s enough for now. Stay frosty, friends.


Tackle Trading Resources on Portfolio Protection

Continue learning about this powerful options strategy: Portfolio Protection. From free articles to Premium System and Trading Playbook, Tackle Trading has all the resources you need to MASTER this strategy like a PRO.

Portfolio Protection For Beginners [Free Articles]

bear market survival guide
Beginner

Long Put: IWM or RUT

In this video tutorial, Coach Matt walks thru how he has been handling the additional macro risk in the market by trading Long Put options on the IWM.

Read More »

Tackle Trading Playbook [FREE for PRO Members]

PRO Members now have unfettered access to the Tackle Coaches’ personal playbook containing thirty-one powerful trading strategies categorized according to the Options Greeks. Bullish, bearish, or neutral market conditions, this Playbook will help you dial up the right call more often and with greater confidence.


Tackle Trading: Financial Freedom is a Journey. Sign up now for a 15-day free trial.

Financial freedom is a journey

Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.


Legal Disclaimer

Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.

All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.

One Reply to “Tales of a Technician: How to Trade in a Bear Market”

  1. AbidRahnaman says:

    Thanks Tyler

Comments are closed.

Chart Modal

Tackle Trading