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Trading tips for the Summer of the Bear


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What You Need to Know

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Bear fighting
Traders face a bear market this summer – Photo: Getty Images

While a bear market has forced many investors to the sideline this summer, trading small is predicted to continue as rallies and selloffs come and go, possibly pushing the market even lower.

Year-to-date, the Dow Jones Industrial Average (US30) is off 14%, the Nasdaq 100 (US100) is down 27% and the S&P 500 (US500) is 19% in red territory.

Will market sink further this summer?

In an interview with Capital.com, Michael Sincere, best-selling author of Understanding Options and Understanding Stocks, warned the bearish summer would fluctuate amid “numerous selloffs and rallies, with the market ending much lower over the next few months.”

“Unfortunately, no one knows just how low the indexes will go, but based on my own technical analysis, it would not be a surprise to see the S&P slip to 3,200,” he added.

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S&P 500 (US500) price chart

What can traders do?

Amid economic downturns in markets around the globe, inflation, and ongoing supply chain disruptions due to new Covid-19 outbreaks in China, “traders should use indicators and oscillators to help guide them this summer,” Sincere explained.

“For example, the Relative Strength Index (RSI) will help identify when a stock or index is overbought or oversold,” he said. “Contrarian traders can take advantage by moving in opposite direction of the indexes, as the strategy has worked well over the last few months.”

 

Start small: No tips, no tricks

According to Sincere, “there are no tricks this summer or any other, and a surefire way to lose money in the market is to buy stocks or any other financial product based on a tip.”

“Traders should start by trading with a small amount of money and experiment with multiple strategies,” he said. “Do your research, look at the stock or index on a chart and identify an entry and exit point.”

“The good news is that bear markets eventually end, and when they do, there will be fantastic opportunities for patient traders to buy stocks that are on sale,” he finished.

Nasdaq 100 (US100) price chart

Forecast: When will bear market end?

To control inflation, the US Federal Reserve announced the largest interest rate hike since 1994 last month. Meanwhile, energy prices are falling after skyrocketing earlier in the year amid Russia’s attack on Ukraine.

David Russell, VP of Market Intelligence at the TradeStation Group in the US told Capital.com “We are beginning to see signs inflation is coming under control.”

“And as it turns out, the inflation and recession horror stories were not as terrible as we thought they would be, and while there is a lot of negativity in the market as a result, there is also the possibility the pendulum will swing in a positive direction soon,” he finished.

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What You Need to Know

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

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