My Bear Market Survival Facts

by | Mar 12, 2020

I was in the Elite chat on Wednesday morning to talk about the market, and it seemed like the sentiment was pretty unanimous: It’s been an exhausting couple of weeks! 

Profitable, for many of us, but a mentally draining ride with all of the massive, high-speed moves higher and lower in the stock market. 

The crazy part is, we haven’t even hit the height of the election season yet, which could be another big driver for stock market volatility down the road… and potentially right after we’ve gotten “out of the woods” with regards to this coronavirus situation.

If you’re worn out from the constant high-speed churn of day trading — or if you’re someone who generally tries to avoid day trades altogether — be sure to add your email for my new buy-and-hold stock report being released soon. 

I did a deep dive into the markets to find one “election-proof” stock I think is set to soar no matter what kind of surprises we might see this November, and I’m excited to share it with all of my subscribers.

But for now, it’s been challenging to work our Dollar Ace watchlist in the usual way. The market’s big opening gaps and volatility spikes are causing option prices to move really quickly, and across-the-board momentum shifts have been dragging entire sectors along for the ride.

And now, as you no doubt heard from the headlines, the Dow officially entered a bear market as of last night’s close. 

Unless you started trading prior to March 2009, this may be your first experience with a “formal” bear market (although we came real close back in December 2018). 

So what does this mean? And most importantly, how do we navigate through it successfully?

Let’s talk through some bear market facts!


Bear Markets Can Smell Fear


The most important thing to remember when the Cboe Volatility Index (VIX) — the market’s “fear gauge” — is rising through the roof? Don’t let YOUR fear gauge spike through the roof! 

It’s more important than ever to stay calm, cool, and collected in your trading. Remember the old adage: “Markets can stay irrational longer than you can stay solvent.” 

That definitely applies here — so now is not the time for bold calls or heroic trades. Instead, be selective about your setups, and swing for base hits using trusted setups.


This hourly VIX chart shouldn’t even vaguely resemble your blood pressure readings.


That also means you continue to honor your profit targets (even when that coronavirus play catches fire and you think you can wring out a few extra points…), and stay true to your stop-losses (even if you think the intraday selling is overdone and surely we’re due for a bounce into the close…). 

When volatility is this high, disciplined money management is more critical than ever. Set your stops, keep them tight, and stick to them! 

And when you find a winner, don’t get greedy. Take your profits when you have them because the market can turn on a dime.


Bear Markets Are Just a Number


There’s no great fundamental shift that happens when a stock index is down 19% versus down 20%. This market has been crazy volatile for weeks, and it will likely continue to be crazy volatile for a couple more weeks, at least, until the level of fear finally starts to ebb. 

The fact that we’ve met the bear-market threshold is mostly of interest to statisticians and… you guessed it… headline writers.

Now, if you recall, I was watching underperformance in the small caps back in mid-February as a point of concern for this market (jump to about 17:11 in this video). And in fact, the small-cap tracking IWM entered a bear market on Monday of this week, a couple of days before the Dow.

Were you even aware? Did you read any headlines about it? 

Probably not… because it’s not quite as attention-grabbing as the Dow’s big plunges and swings have been, and IWM is not as commonly followed outside of the financial media.



The small-cap bear market started a few days ago.


IWM has continued lower since blazing the bear-market trail on Monday, and it may be worth keeping an eye on the small-caps as a “tell” for what’s in store for the Dow. When the small-caps begin to stabilize, it could be an indicator that the rest of the market is en route to finally finding its footing, as well.

That said, I hope it’s obvious there’s no “magic” in the 20% decline threshold that changes the rules for how we trade compared to this time last week. As long as volatility remains high, we’ll keep time frames short and stops tight — and as long as the overall trend remains bearish, we’ll largely play into that (via put options) rather than fighting it. 


Nice put winners from the watchlist, Justin and Robert! 


However, call-buying opportunities will still be out there, and I’ll be sure to alert them as they come across my scanner.


The Best Bear-Market Indicator is Your Own Body


Now, please don’t think I’m getting all Gwyneth Paltrow on you here — I promise I don’t have any crystal-infused water bottles or essential oils to sell you! But truly, sometimes your own body can be the best indicator that you’re in the wrong trade. 

What do I mean? Well, check out this video starting at 6:25, where I talk about what happens when I start to get frustrated with my trading. (Yes, it happens!) 

And then starting around 7:33, I discuss the physiological signals you get when a position size is too large, meaning you’ve taken on too much risk — furrowed brow, sweaty palms… you know the routine.

The same principle applies when you’re trading in a highly volatile bear market. If you find yourself hunched over your screens, glued to every tick, and getting visibly and physically frustrated by the action in your portfolio — that’s a good sign that you’ve taken on too much risk, and it may be time to scale back your exposure, or even step away for a bit to refocus.

Psychology can be the hardest part of trading to master, so go ahead and watch the full video for more on this topic. It’s a longer one — about 41 minutes — so it’s ideal viewing material if you need to take a break from your brokerage app for a while.


How’re You Trading?


OK, gang, hopefully, this was a good reality check as we head into another day’s work in the markets. Yes, the volatility and downside will likely continue in the short term, but we’ll still have plenty of opportunities to profit. 

And ultimately, we’ll be alright on the other side — remember, pullbacks create good buying opportunities.

If you haven’t let me know yet about your recent Dollar Ace trades, find me on Twitter! We bagged some wins late last week on MGM, MRNA, and GOLD. 


Love it, Roland!


Or if you ran with some watchlist trades, like Justin and Robert, I’d love to hear your results!

Take care, team, and I’ll be in touch soon!


Submit a Comment

Your email address will not be published. Required fields are marked *