LONDON, February 8, 2012 /PRNewswire/ --
Trading in a bear market can be tricky for new traders, but there are plenty of opportunities to be had by spread betting and short-selling as the markets fall. Here, City Index explains the bear necessities of trading in a bear market.
By definition, a bear market is when the stock market falls for a prolonged period of time, usually by twenty percent or more. Investors who are scared by pressurised company earnings typically sell their stock, causing the price to drop as demand wanes. But for a trader, spread betting can be an invaluable method of trading in these conditions, as it allows you to profit from a falling market as well as a rising one. Ironically, the bear market can typically be kept alive because few buyers are purchasing investments, so the selling continues.
Spread Betting in a Bear Market
Because spread betting allows you to profit in a falling market as well as a rising one, it has proven to be incredibly popular for trading in a bear market. If a spread bettor is able to interpret the signs and then react quickly enough, a falling bear market can be every bit as profitable as a rising bull market.
By learning about the risks associated with trading and how to manage them, you can ensure that your spread betting strategy is in the best possible shape to react the next time a bear market comes around. Alternatively, traders can open buy positions with the markets at what they perceive to be their lowest point to capitalise on the market recovering and profiting as prices rise.
Minimise Risk with Stop Losses
As with any trades, it is important to create a plan and enforce it using entry points, exit points, stop losses and limit orders. Having these predetermined boundaries in place can help to minimise potential losses should the market move against your position.
A carefully considered strategy will also help you to focus on your goals and not give in to poor trading psychology and impulses to take your profits early or run your losses as the markets fluctuate.
Technical and Fundamental Analysis
Charting and news are two of the most important and popular resources available to traders, providing insights into future potential market movements. Technical Chart patterns can be used to identify trends and speculate on the eventual emergence of bear markets while fundamental analysis based on rumours, news and economic conditions can have an equal impact on the markets. And while many traders will often fall into one of the two camps, both technical and fundamental methods are worth considering when planning your spread bets.
Learn more about the benefits of spread betting in a bear market with City Index at: http://www.cityindex.co.uk/learn-to-trade/
Spread betting and CFD trading are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.
About City Index
Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.
As a group, we transact in excess of 1.5 million trades every month for individuals in over 50 countries worldwide. We provide access to a wide range of instruments including margined foreign exchange, trading CFDs and, in the UK, financial spread betting.
SOURCE City Index