Without a doubt, 2022 has been one of the most turbulent years the markets have experienced and there is still a long way to go until this year is over. However, as a trader, it is essential to remember that with turbulence come many opportunities for those who know how to navigate the markets. With rising inflation, upcoming recessions, and constantly fluctuating prices, traders need to prioritize gaining greater market awareness and maximizing their trading skills so as to be in a better position to predict what may follow and effectively make the next move.
Keep reading to find out everything there is to know about bear markets and discover strategies that can help you reach your trading goals, even when the markets are bearish.
What is a Bear Market?
If you’ve been part of the online trading experience for a while, then you probably already know what the terms ‘bull’ and ‘bear’ are all about, but if you’re a beginner then you might be wondering why we are talking about these two animals in the context of trading. In simple terms, a bull market occurs when securities rise, and a bear market when securities fall over an extended period. In bull markets, assets are on the rise as a result of confident market sentiment in thriving economies. On the other hand, a more pessimistic sentiment causes market prices to fall as traders retreat from investing and fear the consequences of a falling economy, resulting in a bear market.
What causes a Bear Market?
As we’ve mentioned, the financial markets respond to economic events and market sentiment. This means that at any given time, market prices could soar to new heights or they can rapidly dip to record-breaking lows. Every economic and political event can have a significant impact on the outlook of the markets. Therefore, some of the main causes that could result in a bearish market are:
- Increasing unemployment
- Shrinking economy
- Economic recessions
- Rapidly rising inflation rates
How to maintain your confidence in the markets
Trading CFDs requires determination and confidence. Any trader knows that online trading comes with daily challenges and this is why it is essential to find ways in which you can adapt to market conditions and focus on your ultimate trading goals. When everything seems to be going downhill, you may feel the urge to sell everything and wait until the markets are back to normal. While you should always consider your exit strategies and risk tolerance, you should also remember that trading on impulse rarely ends up being beneficial to your trading plans. Considering that bear markets tend to not last as long as bull markets, prices could change at any moment. For this reason, strategic thinking will prove to be more effective than acting on emotional outbursts.
Most importantly, traders should focus on their long-term strategies. In other words, keeping your trading goal in mind will guide you throughout the challenges of trading and will keep you disciplined when it comes to deciding on your next move.
Bear Market 2022
2022 marked the worst start to a year for the S&P 500 since 1970, falling 21% in the first half. A drop of more than 20% from the S&P 500's high on Jan. 3, 2022, led to it entering bear market territory on June 13, 2022. With inflation rates being on the rise, unemployment going even higher, and fear of an economic recession, this bearish market is keeping traders on their toes.
Keeping up to date with every economic event that could impact your trading positions and boost your trading strategies, can help you better prepare for any market condition! Log in to your XPro Markets trading account to take control of your trades.
