Trading in a Down Market

Trading in a bear market can present volatile market swings and really hurt if you continually fight the downward trend. This is especially important if you have a long stock position in a 401K or IRA account. You should consider opening up a cash or margin account to offset some of the risk of being solely long stock and mutual funds in your tax-deferred accounts.

You can trade bearish positions within your cash account that are still premium-selling, theta-collecting trades. You will also want to ensure that the trades you are placing are High Probability Trades, meaning when we place the trade, we have a probability of success of 65%-75%. You also want to make sure you are trading in very liquid products, namely Exchange Traded Funds (ETFs). Finally, remember to give yourself some time to let these positions work for you, namely 4-10 weeks prior to expiration.

Taking into account all the criteria listed above, let's find a bearish high probability trade.

by thinkorswim |  11/06/08  |  Stocks: DIA,