Few terms instill as much fear in investors as a bear market. Most everyone has heard the words bear market – not to be confused with a beer market which generally has positive connotations for revelers. It’s important to set the record straight about precisely what constitutes a bear market and why it is important to adopt specific strategies when trading binary options in this type of trading arena. The name bear market is derived from the animal itself. When a bear goes on the attack, it generally keeps its head and shoulders low and swipes at its targets with low crushing blows. This is precisely what to expect in a bear market. The trend is downwards, and prices typically follow that trend. The good news about a bear market is that it doesn’t necessarily need to be viewed as a bad thing. Read here at Binarries.com on for how you can profit off a bear market with binary options.
Bear Markets in Perspective
If we stick to the rigid definition of a bear market, we would generally agree that it is characterized by a 20% decline in the following stock market indexes: the NASDAQ, S&P 500 Index, and the Dow Jones Industrial Index. Dating back to 1926, the average bear market has a lifespan of 1.3 years. And it’s not all downhill in a bear market either; a decline of around 10% to 20% will be followed by a strong bullish run. As you might have expected, sentiment is negative, and fear is all pervasive in this type of market. It’s almost as if people with money to invest are hiding until the markets present opportunities for them to come out and invest again. The majority of negative sentiment in this type of market is fear-based.
Bear markets drive prices downwards, and assets, indices, stocks and Forex are not as buoyant – price wise – as they might normally have been. This means that the prices of these tradable assets are lower, presenting opportunities for great bargains. Of course it helps to know when the market is about to bottom out, so you don’t buy stocks that are on a one-way ticket down. In any event, bear markets are great for binary options traders too. Remember that there are only 2 potential outcomes in any binary options trades: put options and call options. We are interested in the former because we are anticipating a downturn in prices. Recall though that bear markets are also characterized by strong rallies after downturns.
A little intuition goes a long way in these types of markets, and emotional trading is certainly not advised. There are many ways to mitigate the potential pitfalls inherent in a bear market. These include investments in municipal bonds, U.S. Treasury issues, certificates of deposit and other fixed income options. On the stock side of things, you may wish to look into preferred stocks and dividend stocks. As one of the newer investment alternatives, binary options should certainly be considered as a viable alternative for traders.