A bear market is when prices are falling or expected to fall. It is characterized by pessimism, declining confidence, and expectations of further losses. Here is what you need to know.
What Defines a Bear Market?
The common definition is a decline of 20% or more from recent highs. Bear markets can last months to years.
Key characteristics: Falling prices, low investor confidence, weak economic indicators, increased selling, negative news sentiment.
Bear Market Characteristics
- Sustained downtrend: Lower highs and lower lows
- Negative sentiment: Investors are pessimistic
- Weak economy: Slowing GDP, rising unemployment
- High volume on down days: Sellers are aggressive
- Rallies are sold: Bounces are seen as exit opportunities
Bear Rallies
Bear markets have sharp rallies that trap buyers:
- Can be 10-20% or more
- Often fail at prior support (now resistance)
- Give false hope before resuming the decline
- Called "dead cat bounces" or "sucker rallies"
Bear Market Danger
Bear markets can wipe out years of gains. The biggest single-day rallies often happen in bear markets, trapping buyers who think the bottom is in.
How to Survive a Bear Market
1. Reduce Exposure
Raise cash, reduce position sizes, be selective about what you hold.
2. Hedge Your Portfolio
Use puts, inverse ETFs, or other hedges to protect downside.
3. Do Not Fight the Trend
Avoid buying dips until there is evidence of a bottom.
4. Preserve Capital
Your primary goal is survival. Living to trade another day matters more than catching the bottom.
Options in a Bear Market
- Buy puts: Profit from falling prices
- Bear put spreads: Bearish with defined risk
- Protective puts: Hedge existing positions
- Sell calls: Generate income in declining market
Signs a Bear Market is Ending
- Extreme fear and capitulation
- Attractive valuations
- Positive divergences on charts
- Economic data stabilizing
- Sector rotation into risk-on areas
Track Your Bear Market Trades
Pro Trader Dashboard helps you analyze performance in different market conditions.
Summary
A bear market is a prolonged period of falling prices characterized by pessimism and fear. Prioritize capital preservation over trying to catch the bottom. Reduce exposure, hedge positions, and wait for clear signs of reversal. Bear markets end, but trying to time the exact bottom is dangerous.
Learn about the opposite: bull markets.