Can You Profit From Oil Investing in a Bear Market?

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Financial experts have been predicting a bear market for a couple years now. Correction always happens in the stock market and the economy. After a solid several years of bullish stocks, you can expect to see the market turn bearish. Oil investing, fortunately, is something you can do in a bear market, too, if you know the right money management tips.

A bear market occurs when stock prices fall 20 percent or more from previous support. The future might look bleak for some investors, but not for me. I don’t depend on the economy’s health for my wealth management. Instead, I use the market to my advantage no matter its condition.

Let’s look at some of the ways in which you can profit from oil investing in a bear market. Set your fears aside and understand that you’ll always have options.

Understanding a Bear Market

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A bear market occurs when the prices of a given security or commodity, such as stocks, are trending downward. As stock prices fall, more people sell their shares, which perpetuates the cycle. Bear markets are the opposite of bull markets, which occur when prices trend up.

When it comes to oil investing, you can invest in stocks no matter the market conditions. I don’t worry about whether we’re living in a bull or bear market as much as what individual stocks might make me more money.

More specifically, I want to know what recommendations will help you make more money.

When a bull market turns into a bear market, everyone panics. That actually can set up the savvy investor for some excellent plays, but good investors must see past the panic and look for opportunities instead, especially when it comes to oil investing.

Let’s look at some of the ways in which you can profit from oil investing in a bear market.

Go Long on Blue Chip Stocks

Blue-chip stocks aren’t immune to industry trends, but they’re far stronger than the smaller companies with less liquidity and more debt. Make your safe investments by going long on blue-chip stocks and resisting the urge to sell as soon as you see a tiny dip.

You have to hedge your bets when it comes to oil price investing. Yes, you want to consistently profit from income trades, but you also need a few long-term investments in your portfolio that protect you against the downside in a bear market.

Focus on oil investing in solid companies that, historically, have always bounced back. These are the companies with sufficient resources to ride out the storm.

Go Short on Small, Unstable Companies

Shorting stocks is a great oil investing plan during a bear market. You’re essentially betting that a stock’s price will decline, then profiting off the difference between what you pay to borrow the shares from your broker and the price at which you sell the stock.

It’s true that shorting isn’t always popular in oil investing, but that’s what makes it such a good play. When other people are panicking and dumping their stocks at insanely low prices, you can profit off their panic.

Remember, though, that shorting can be dangerous. You’re borrowing from your broker, so you have to return those shares or make up the difference in cash. Only short stocks if you know you’ll be able to find buyers on the downside. Look for lots of volume.

Switch to Short-Term Trading Mode

Even during a bear market, we don’t see the entire system decline in one fell swoop. Just like stock prices can fall during an overall bull market, stocks can rise in a bear market.

For oil investing success, switch into short-term trading mode. Look for plays where you can take small profits over a brief rise in stock price. You’ll have to watch the price action carefully to predict these fluctuations, but when you get it right, you can take home profits while everyone else loses money.

Pay Careful Attention to Dividends

In many cases, oil investing pays off best through dividends. Remember those blue chip stocks I mentioned earlier? Focus on the ones that pay out the best dividends in terms of your long-term investing strategies.

Rotate Plays Within the Oil Sector

You might have heard about rotating sectors, but rotating plays can also work for you during oil price investing in a bear market. You never know when one company’s stock will plummet and another’s will take off. You need to be in a position to take advantage of those opportunities.

Avoid Oil Investing on Margin

Margin isn’t the best route to profits in a bear market, especially for oil investing. When you trade on margin, you’re borrowing up to 90 percent of the shares you purchase from your broker. And no broker will let that debt go unpaid.

Too many investors think they can buy a huge position for a small sum of money and bring home tremendous profits. Sometimes they do. But when they don’t, there’s no floor for your losses. You can just keep bleeding money.

Instead of trading on margin, trade with profits. Protect your nest egg while you grow your wealth during a bear market. Oil investing opportunities will always exist, so don’t put yourself in a position to lose cash.

Consider Speculating With Call Options

Options trading is another oil investing strategy that can work well in a bear market — particularly call options. Again, you’re hedging your bets.

When you place a call option, you’re not obligated to the trade. Let’s say the price action moves against you. All you’re out is what you paid for the option, so you have a floor for losses. That’s key to maintaining profitability.

Keep Stop Loss Orders in Place

Don’t forget to exercise stop loss orders. They tell your broker when to sell a security so you don’t continue to lose money. In other words, cut your losses as quickly as possible.

Conclusion

Bear markets might seem like an insurmountable obstacle, but they actually open up oil investing opportunities. If you’re smart, you’ll see plays before others do and take your profits before anyone else gets in the game.

To learn more about oil investing and oil price investing, sign up for Energy Inner Circle. We’d love to have you. It’s a great way to get more comfortable with oil investing and to manage your profits efficiently.

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