Daniel Will: Survival Tactics in a Bearish Stock Market

Daniel Will: Survival Tactics in a Bearish Stock Market

As the saying goes, the stock market is perilous. Indeed, trading in the U.S. stock market is a high-yield but high-risk investment. Investors should mentally prepare themselves before entering the U.S. stock market and formulate strategies to deal with losses. Stock prices neither always rise nor always fall, so even in unfavorable market conditions, one should not act recklessly.

I. Trading Strategies in a Downtrend

In a bear market, the overall trend of the stock market is downward. The primary strategy at this time should be to hold onto cash and take advantage of rebound opportunities for short-term closures. Avoid harboring any optimistic fantasies about the stock market during this period, and don’t naively believe that a rebound will last for an extended period. Take what you can get during a rebound and avoid greed.

To successfully seize opportunities during a rebound for short-term trading, it’s crucial to carefully study candlestick charts. Daily candlestick charts record the day’s changes in stock prices. If you can fully utilize the information provided by these charts, you can easily anticipate the potential future trends of stock prices. Successfully mastering candlestick charts is not a simple task; it requires a significant investment of time and effort. Besides candlestick charts, other technical analysis methods can be used to choose strategies for trading in U.S. stocks, and we will have more introductions later.

II. Operating Weak Market Stocks

It’s essential to understand a fact: profits can be realized not only in a bull market but also in a bear market. The key is how you operate. With careful planning and diligence, even in a weak market, there are many opportunities for profit.

Firstly, a basic principle for operating weak market stocks is to “cut losses quickly.” In simple terms, once in a weak market, regardless of the purchase price, sell promptly to minimize total losses.

Secondly, you can use a method of gradually averaging down. For example, if you invest in three stages, you can invest one-third each time and calculate the average price. After the stock price rebounds beyond your average purchase price, sell after deducting various expenses to make a profit.

Additionally, you can use the method of doubling down to average out costs. Invest one-third of the funds the first time, and if the stock continues to decline, invest two-thirds of the funds the second time to average out costs. If funds are abundant, you can use the three-stage doubling method, dividing the funds into eight equal parts for each stage. After the third purchase, when the stock price rebounds to the second purchase price, selling the stock after deducting various expenses can yield profits.

III. Exercise Caution in Off-Peak Season Operations

In general, changes in trading volume reflect the prosperity and downturn of the stock market. Investors seeking short-term arbitrage profits usually enter the market during active trading times, while long-term investors focusing on fundamentals are not suitable for entering the market at such times. Trading activity implies rising stock prices. Entering the market at this time means incurring unavoidably high costs. Even if good returns can be obtained later, the higher costs significantly reduce the overall return on investment.

From a long-term development perspective, long-term investors are better off entering the market during off-peak seasons. Entering during off-peak seasons may not yield short-term arbitrage profits, but the investment cost will be much lower than during peak trading seasons. In terms of long-term return on investment, it is still quite good. Off-peak entry does not mean entering the market when trading is initially slow; the best time is towards the end of the off-peak season. The difficulty of off-peak operations lies in not knowing when the end of the off-peak season is. Entering too early may encounter prolonged market downturns, and entering too late may miss the opportunity for a stock price rebound.

Long-term investors who want to enter the market during off-peak seasons can adopt a strategy of gradually buying down. That is, buy half or one-third first, and continue to add positions regardless of whether the market is rising or falling. This approach achieves the goal of averaging down costs, ensuring that you won’t miss the opportunity to enter the market, even if you are unsure when the end of the off-peak season is.