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Penny Stock Basics

Bear Market: The Trader’s Survival Guide

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Written by Timothy Sykes
Updated 9/29/2021 17 min read

Is a bear market really as bad as the ‘experts’ and TV talking heads make it sound? 

No doubt, there have been some major shifts in the major indices in 2020. We had a huge sell-off followed by all the indices making new highs. The volatility has been INSANE.

So even though there can be big dips in the market, is it the worst thing in the world?

Nah, bear markets can actually be healthy for the overall market. And the market usually recovers over time, just like it has in the past. So strap in and get ready to cozy up … to bear markets.

Because self-sufficient traders learn to trade through any kind of market.

Read on to learn bull and bear market definitions, strategies for trading in a bear market, and mistakes to avoid. Let’s get to it!

What’s a Bear Market?

The term bear market describes a downward trend in the market. Typically, a 20% decline from recent highs is considered a bear market.

A bull market is the opposite of a bear market. A 20% increase in the market off recent lows is referred to as a bull market.

A Brief History of Bear Markets

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There have been a few bear markets in the history of Wall Street. Of course, we all know the Great Depression and the stock market crash of 1929. Then there’s the great recession of 2008, and most recently, the coronavirus market crash.

But those are just some of the larger ones. There have been smaller bear markets. A sector or certain stock can even be considered bearish.

Is a Bear Market Good or Bad: What You Should Know

Overall, I think a bear market is a good thing for the market.

It might seem like it’s bad when stocks drop and people lose money or retirement savings. But there’s ebb and flow to the market. Markets don’t go straight up or straight down.

And usually, a bear market leads to another bull market. Lower prices bring in more buyers, which can create a bounce to the upside and the start of a new bull market.

I’ve been trading for 20+ years and have seen all kinds of markets. And I’ve learned to trade through it all. You can learn too. Get into my 30-Day Bootcamp to start building your market knowledge today.

Bear Market vs. Bull Market: What’s the Difference

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In a bear market, stocks decline. Investors and traders have a negative outlook on the market or economy. Investors start selling, which drives down demand and prices.

On the other hand, investor sentiment is positive in a bull market. Employment also tends to be high, and there’s a lot of business and technology growth. Prices increase, and everyone wants in on the action.

It looks like there is no end to the highs of the market. This mentality drives prices higher.

What Are the Typical Bear Market Stages?

There are stages that are common in most bear markets. Let’s check ‘em out…


This stage is usually just before and at the beginning of a bear market. Stocks and the market are at all-time highs. It looks like there’s no end in sight. The economy is stable and everything seems OK … But then there’s…

Profit Taking

Investors with positions since the onset of the bull market trend start to take profits. They may feel there’s a correction or downturn due.

Or there could be a catalyst that starts the bear market. Think bad news about jobs reports or the economy — or a global event like the coronavirus pandemic. The slight downturn triggers more selling which leads to…


Capitulation is a fancy word for panic selling. As stocks go lower from investors taking profits or bad news, panic selling starts. Latecomers to the initial uptrend may sell to break even or for a small loss.

The situation is compounded as more stocks fall and more people panic. Until it reaches maximum panic when even the most patient investors jump ship. That brings us to…

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The Bounce

New traders and market speculators start to take positions, believing the worst is over and the market’s due for a bounce. It’s where investors think they can buy at bargain prices.

The economy may be doing better and good news starts to come out. Investors start to think positively, and combined with lower stock prices, that means buying increases. And that leads to the next bull market.

It’s all a cycle. But it’s not an exact science. The market is based on investor psychology and the overall sentiment about the market and the economy.

Each bull and bear market will look a little different. They all have different percent losses and take different amounts of time to recover.

What’s a Bear Market Rally?

A bear market rally is a bounce after a big decline in the market. People think the worst is over and start to get back in positions. Once a bounce starts, it often creates a domino effect of buyers getting in and shorts covering their positions.

How Long Does a Bear Market Rally Last?

Bear market rallies can last for a while. They can trick people into thinking the worst is over and that we’re back to a bull market. But they can then give way to even longer-term downtrends.

Bear market rallies can last weeks, months, or even years. The average bear market rally lasts about two years.

Like the stock market crash of 1929. The crash happened quickly, followed by a few weeks of uptrending. Then there were the continued lows and the Great Depression, which lasted for years.

Will this happen again? Nobody knows for sure. But I think it’s worth studying the past. Want to trade smarter in any kind of market? Know what’s possible. Apply for my Trading Challenge for access to webinars, every video lesson I’ve ever made, and more.

All my top students come from my Trading Challenge. And they’ve all studied their butts off to prepare to trade through anything.

Bear Market: Real-Life Example

Let’s look at the recent example of the coronavirus bear market.

The economy was pretty much shut down. Businesses were closed. People weren’t working. It created a negative attitude around the market, businesses, and the overall economy.

That made people nervous. And that’s what makes them start selling their positions, taking profits while they have them. Then you have short-sellers adding selling pressure to stocks and the overall markets.

The Dow Jones Industrial Average and the S&P 500 entered bear market territory on March 12, once they lost 20% from recent highs. The drop ended the longest bull market in U.S. history.

Since the March lows, the markets almost recovered those losses. But is it a full recovery or a bear market rally?

Nobody knows for sure. But the economic shutdown and people’s fear might have longer-term consequences on the economy.

Can You Make Money During a Bear Market?

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Yes, you can make money during bear markets. This year has been my best trading year ever. And a lot of my top students are having their best year.*

(*Please note that these kinds of trading results are not typical. Most traders lose money. It takes years of dedication, hard work, and discipline to learn how to trade, and individual results will vary. Trading is inherently risky. Before making any trades, remember to do your due diligence and never risk more than you can afford to lose.)

When preparation and opportunity come together, my students and I are ready to take advantage.

I now have five millionaire students and multiple six-figure students.* It’s not a fluke or luck. We’ve studied the strategies that work for us. We stick to our setups and rules and take small gains that add up over time.

You need to know which stocks to trade during a bear market.

In penny stocks, you have the potential to find opportunity in any kind of market. They don’t always follow the market like other large-cap stocks.

Let’s get into some strategies you can trade during a bear market…

Top Strategies to Trade During a Bear Market

Below are some strategies you can use during a bear market to minimize risk.

Short Selling

If you want to trade large-cap stocks, you’ll likely want to trade in the direction of the market. Three out of four stocks follow the major indices. So if the overall market is crashing, short selling is how you could potentially profit as stocks go down. (But not if you’re a new trader. It’s a risky strategy.)

When flights were canceled and theme parks shut down, some shorts jumped on airline stocks, companies like Boeing Company (NYSE: BA), and Walt Disney Company (NYSE: DIS).

Even stocks like Uber Technologies (NYSE: UBER) and Lyft, Inc. (NASDAQ: LYFT) went down. Nobody was going to work or anywhere else — why would they need to rideshare?

Stick to Hot Sectors

I don’t trade large-cap stocks. I trade penny stocks and I prefer to go long. My top students and I didn’t have a record year because we were buying shares of Apple Inc. (NASDAQ: AAPL) or Tesla, Inc. (NASDAQ: TSLA). We made our money trading penny stocks in hot sectors.

Not all bear markets and crashes will have hot sectors. But if there’s a catalyst for the crash, there might be another side to the negativity that you can learn to take advantage of.

With the coronavirus, the hot sectors were vaccine plays, mask makers, and even hand sanitizer companies. Home-delivery plays and anything related to home school or work-from-home platforms also had some good opportunities.

This is the kind of hype we like to trade.

Two Major Mistakes to Avoid When Trading in a Bear Market

#1: Don’t Try to Guess the Bottom

When the market’s falling, you can’t just jump in every time there’s a little bounce. Don’t get cocky and think you found the bottom.

The market’s gonna do what it’s gonna do. I don’t blindly jump into trades hoping they’ll work out. I use trading patterns, trends, and knowledge from over 20 years in the market.

To help new traders in this volatile market I created my FREE “Volatility Survival Guide.” Check it out. If you’re new to trading, you’ve probably never seen a volatile market like the one we’ve seen in 2020. I’ve never seen a market quite like the one we’ve seen this year.

#2: Don’t Fight the Market

You hear me say this over and over. Don’t try to fight the market or a stock. The market doesn’t care what you want or where you want a stock to go. It doesn’t care about your position.

The market is driven by much larger investors than you and me. You have to go with it. You make your thesis and act on it. But if you’re wrong, you must cut losses quickly and get the heck out.

Are We in a Bear Market Right Now?

The market’s been all over the board in 2020. I think it’s safe to say the coronavirus will have a long-lasting effect on the economy.

I say you should shift your mentality away from what the market’s doing. It can be a dangerous way to approach the market.

You have to be ready for anything that can happen.

I’ve been waiting for a bear market or correction for a few years now. I thought it would give me a break, some time to slow down. But I’ve been busier than ever since the coronavirus crash.

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The pandemic created a catalyst for companies in the right sectors. It also brought down other companies and made them more affordable to everyday retail investors and traders.

Lots of new traders wanted to get into the market while it was low.

But when stocks aren’t low anymore, who’s gonna buy them? As stocks, and the market in general, become too expensive, it leaves out a lot of investors and traders. That eventually leads to fewer buyers. And the cycle continues…

Frequently Asked Questions About Bear Market

How Long Do Bear Markets Usually Last?

Bear markets can last weeks or months. But some of the longer ones have lasted for years. Historically, the average bear market lasts about two years.

Can Stocks Go to Zero During a Bear Market?

Stocks can go to zero at any time. That’s the risk of the market. The chances increase during a bear market, especially if the overall economy is poor and businesses are going bankrupt.

Is It Better to Buy Stocks in a Bull or a Bear Market?

You never want to try to catch a falling knife. Trade in the direction of the market trend. Penny stocks don’t necessarily follow the market, so my top students and I have learned to profit in any market.*

Conclusion: Should You Trade During a Bear Market?

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The short answer: yes. You can trade in a bear market. But you’ll have to adapt to the change in market conditions and follow the rules.

I teach students my trading rules in my Trading Challenge. My Trading Challenge is where my millionaire students found their trading stride.* 

That’s because they got access to the most resources, like weekly live trading and Q&A webinars with me and my top students.  They also get all my video lessons, DVDs, and access to my Trading Challenge chat room.

Once you learn how the market and patterns work, you can learn to take advantage of it. That’s how you can create the future you want for yourself — freedom from a 9-to-5 job and the ability to work from anywhere.

How do you trade through bear markets? Are you prepared to adapt no matter what the market throws at you? Let me know in the comments … I love to hear from you!

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”