What are market bears?

Market bears are people who believe that the stocks will go down in the near future. These traders are favored during a bears market. During a bulls market, however though they may find it harder to make money by playing the downside. Bulls are favored in a bulls market.

There are a number of reasons why someone would choose to be bearish on a given stock.

1. Maybe the stock is worth more than what it should be. This can be a dangerous way to be bearish if the only reason you are bearish is because the stock is high. Traders who top pick should expect to lose money. If the stock has fallen a little bit and you still see room for it to fall that could be a better trade.

2. Maybe the stock is in a downtrend. If a given stock is in a downtrend then it makes sense to be bearish on it. The “trend is your friend”. Many traders will make a fortune shorting stocks when they are in a downtrend.

3. Maybe we are in a recession. If we are in a recession than being short would normally be a good idea. After all in a recession stocks tend to fall. Market bears must still limit their risk and get in with technical indicators. In a bears market limiting your risk can be even more important.

There are many ways to make money when the stocks go down. Many traders will start off by shorting stocks. This is the simplest and least leveraged way to trade a stock on the downside.

Other traders will use more advanced trading techniques with more leverage. For example a trader might buy a put. This would help him make much more on his money than simply shorting the stock would. The downside to this is when you buy a put you are taking a big risk. You could potentially lose all of the money you put into the trade.

Some traders prefer to be bearish because markets tend to go down faster than they go up. These market bears believe money will actually come faster in a bears market then it would in a bulls market.

This has some truth to it. Jessie Livermore who is considered the stock markets most successful bear made $100 million dollars in the market during the great depression. Some people believe that he is the best trader who ever lived.

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