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Bear market trading requires us to completely change our mindset and strategy – but many traders don’t. Why is this? Wishful thinking.

Traders and investors are used to markets going higher, which is historically accurate. But when markets need to reset or pull back – in the short-term or over a period of months – we need to adjust, too. Unfortunately, the prevailing thought is often, “So what if the markets are moving to the downside? They will bounce back – they always do.”

If your investing timeline is decades, then that way of thinking can work. The markets will have far more moves to the upside than to the downside.

But for short-term investors and those who trade on a regular basis, our livelihood depends on being on the right side of the tape. If you don’t shift to a bear market trading mindset and instead continue to fight it, you will eventually pay the ultimate price. Not death, but a loss of wealth.

Bear market trading requires quick thinking

You can survive a bear market. You can even thrive and build your wealth. Because bear markets move up and down quickly, so you need to be quick on your feet.

A few years ago we wrote a bear market playbook: How to Manage Your Trading During a Bear Market. It includes all the rules of engagement during a bearish period.

Make no mistake, the rules are completely different in a bear market. Got a 25% gain on a put play? Quickly book that profit. During a bull market, you might look for a 50% or more gain. In a bear market, always take a profit when you have one.

Do you normally have 70% of your portfolio in stocks? In a bear market, reduce that to 35% or less and hold larger amounts of cash.

Not adept at using call or put options? Learn how to trade both, because they will be vital to your survival.

Bear markets don’t last long but most investors remember them, because they probably lost large sums of money. I have, but I learned my lesson and adapted to the conditions. You can, too. Just stay aware, be flexible, leave your ego at the door, and make changes on the fly.

Protect and grow your wealth, and you’ll be ready when that next bull market starts.

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