What Is a Bear Market? (And How Day Traders Use It)
A bear market is a decline of 20% or more from a recent high, usually across a broad index like the S&P 500. The number is a convention rather than a law of nature, but it captures something real: a 20% drop means the crowd has changed its mind about value, and the rallies that follow get sold instead of bought.
What a bear market looks like on the chart
- A series of lower highs and lower lows – the textbook definition of a downtrend.
- Sharp rallies that fail at resistance. Bear market rallies are some of the fastest moves you will ever see, which is why they trap buyers.
- Volatility expands. Daily ranges in a bear market are often double what they were in the prior bull market.
Why long-term investors fear it and day traders do not
A buy-and-hold investor has one tool in a bear market: wait. A day trader with a method has the same tools as always – read the direction, define the risk, take the trade. The S&P 500 emini can be sold as easily as it can be bought, so a bear market is simply a market that trends down, with larger ranges and therefore larger daily opportunities. The catch is that the discipline has to be there. Bear markets punish oversized positions and revenge trades faster than any other environment.
Rules we follow in a bear market
- Trade the direction of the daily trend: sell rallies into resistance, do not buy dips because they look cheap.
- Reduce size. The ranges are bigger, so the same dollar risk needs fewer contracts.
- Respect the daily goal. Volatile markets tempt you to keep going after a good morning; that is where the giveback happens.
- Treat every rally as suspect until it makes a higher high on the daily chart.
Read more on why buy-and-hold is not a plan and on support and resistance, the levels that define a bear market rally.
The post What Is a Bear Market? (And How Day Traders Use It) appeared first on Money Maker Edge Live Trading Room Stocks.
Source: https://www.moneymakeredge.com/bear-market/
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