The two main market trends are bull and bear markets. A bull market is the most favourable market to trade and the one that most people know how to trade. However, markets also trend down and these markets are called bear markets. What will you do when the markets change and a bear market hits? What level of exposure will you have in the market during this time?

What is a Bear Market
Share prices across the entire market generally fall during a bear market. These markets can be fast and furious and are usually shorter in duration than a bull market, wiping out a lot of profits and turning profitable trades into losses very quickly. It is impossible to predict how low prices will fall once the panic hits, fear spreads very quickly and drives prices down fast.

Trading a bear market is also known as going “short”. This is when you have a bearish view on a share. Basically, you sell a share that you do not own with the goal of buying it back at a lower price in the future. Aim to trade short if you want to profit in a bear market, or sit on the sidelines and wait it out until favourable market conditions re-emerge.

A bear market is usually the hardest market to trade because short selling is not a common strategy in Australia. Yet it is a strategy that professional traders undertake to profit during a bear market. You can short sell through derivative instruments (by purchasing put options or put warrants), through shares or CFDs.

What is short selling?
Short selling is similar to buying a share, only the buying and selling order is reversed. Instead of buying a share and then selling it, you actually sell the share first and then buy it back at a later date.

Trading is a business and for a business to survive it must have a plan

A SMART trading plan is the key to your success as a trader. When I say SMART, I mean that your plan must reflect the following key criteria that is part of my philosophy in trading:

Simple:
Keep your plan simple — it is easy to get bogged down with too much information in trading and overcomplicate it with too many rules. I like the KISS method “Keep It Simple Stupid”. For a technical trader, it should simply be about trading in the direction of the trend and exiting when the trend changes. But that is always easier said than done, because emotions often come into play and affect your trading decisions.

Mindset:
You are the most important part of your trading. It is what goes on inside your head that will make or break you as a trader. You need to develop self-awareness and understand your motives for trading. Trading is not just about making money — money will flow from good trading.

Approach
that suits your personality: Trading is about developing an approach that you are comfortable with that suits your personality and lifestyle. Your own personality influences the way you trade. Each person has a different psychological makeup and different reasons for wanting to trade the markets. If your approach does not reflect these things, it is unlikely that you will follow it.

There are two types of analysis that can be used for share trading:

1. Fundamental Analysis

2. Technical Analysis

Technical analysis can be used alone or in conjunction with fundamental analysis.