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6 Key points to understand about Bear Market during COVID-19 second wave

The second wave of COVID-19 is clearly visible in India. The number of cases has reached 2,17,353 per day. The stock market has registered a major decline in a single day after around 4-6 months of the bull market.

Many people have taken an exit to reduce their losses of falling prices.

Now you need to understand that Bear markets are part of a cyclic process. Below are some techniques you can utilize to either maintain your losses or gain some extra profit.

What is a Bear Market? What Causes a bear market?

A bear market is when prices of securities drop significantly varying up to a 20% decline. Anticipating losses in a bear market, selling increases and strengthen the bearish nature of the market.

SENSEX and NIFTY 50 are the most common benchmarks of the entire stock market. SENSEX is the stock market index of 30 well-established and financially stable companies listed on BSE. NIFTY 50 is a benchmark Indian stock market index, representing the weighted average of the largest Indian companies listed on NSE.

When these indices reflect a continuous downturn for over 2 months period, it is considered an entry into a bear market.

The most common cause of a declining market is investor fear and economic uncertainty. However, the global COVID-19 pandemic has caused most of the bearish nature since last year. The other reasons include recession, government decisions, and oil price movement, etc.

How should you invest in a bear market and make a profit?

1. Maintain liquidity: Whenever the market falls, shares are sold at low prices. You can buy those stocks only if you have enough liquidity. So, whenever such times seem to happen, plan out how to utilize your present fund liquidity to make a profit with the rise in the market.

2. Don’t panic: Bear market is a really tough game to play. 1973–1975, 2000–2002, or 2008 all these periods have made situations worse for the investors. On the other hand, it’s an opportunity for you.
For example: if somebody is leaving a city, he is selling a car at half-price and you buy it to further resell .i.e. get low price stocks and forget until the market shows an upward graph.

3. Don’t try to touch the floor: When the stock market starts falling, many investors wait for the “right time to buy a stock. Sometimes this wait doesn’t last enough and they lose their chance to encash the opportunity.
So it’s better to make less profit than losing the whole opportunity. Use stop losses smartly and buy within the limits of encashing the lower price range.

4. Restructure your portfolio: It’s always advised to adjust your portfolio as per the situation. For example, in the COVID-19 pandemic situation, the health sector and IT industry were performing well but the banking sector suffered a lot.
So having a diverse portfolio helps you both ways i.e.: reduce possible losses and maintain stability amid market crisis.

5. Keep Patience: “Patience is the key to success”. This is also valid in the stock market while facing adverse situations. Market shifts are cyclic. If you are in one phase of the market cycle, be patient. The next will arrive soon as the correction gets over.

6. Get in touch with a good financial advisor: A good financial planner can help you with your financial decision and also prevents wrong investments. If you are in Lucknow or anywhere, Capital Tree provides the best financial advice, customized financial planning, and smart asset allocation to tolerate all types of market conditions with ease.

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