Watch Out! Bear Markets are Extremely Volatile and Bear Traps For Unsophisticated Investors
Watch Out! Bear Markets are Extremely Volatile and Bear Traps For Unsophisticated Investors. The charts below of bear markets going back to 1929 show they are marked by extreme volatility with sudden surges amid longer term downward moves. If we have now entered another bear market, this kind of volatility can result in major losses for unsophisticated investors who have been conditioned to believe over the last few years that the only direction is up. For the more sophisticated traders, there is a trading technique known as “buy on the dips and sell on the rips.” In other words, buy on weakness and sell on strength. So, pullbacks as we’ve recently experienced may provide chances to buy extremely oversold stock. However, investors also need the discipline to forsake greed and sell as the markets surge higher, but before the rips convert to bigger dips. For the less disciplined, which historically means most investors, defensive action is the watchword.