Bearish trading strategies are designed to profit from declining markets. Traders use these strategies when they expect an asset’s price to fall.
Key Bearish Trading Strategies
- Short Selling – Selling borrowed shares with the intention of buying them back at a lower price.
- Buying Put Options – Purchasing put options to profit from a price drop.
- Bear Put Spread – Buying a higher strike put and selling a lower strike put to reduce costs.
- Bear Call Spread – Selling a lower strike call and buying a higher strike call to collect premium.
- Inverse ETFs – Investing in exchange-traded funds that move opposite to the market.
- Pairs Trading – Shorting a weak stock while going long on a correlated strong stock.
Bearish trading strategies help traders hedge risk and capitalize on market downturns.
The stock market tends to be bullish more often than bearish over long periods. Historically, bear markets, defined as periods when major stock indexes decline 20% or more, have lasted a median of 19 months, with a median drop of -33%
Bear markets occur roughly every 5.5 to 6 years on average. They can be cyclical (lasting weeks or months) or long-term (lasting years or even decades). While bear markets can be challenging, they are often followed by strong bull markets, where stocks recover and reach new highs.
