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7 ways to find success day trading -- even in a bear market

When the market is in a downturn, all you need is a shift in strategy and the right resources
Written by StackCommerce, Partner

The following content is brought to you by ZDNet partners. If you buy a product featured here, we may earn an affiliate commission or other compensation.

The market is stressed right now, and much of that stress is trickling down. With the Fed raising rates and declining stock prices, it can be all too easy for casual investors to "turtle up" or pull out of the market altogether.

But while it may not be the time to make any risky moves, it's helpful to understand that similar downturns have happened before. It may not be possible to predict exactly when things will bounce back, but you can bet on the fact that they will. With history-informed planning and the right resources, day traders can keep their portfolio afloat in any bear market, which is essentially when stock indices experience a 20% drop from their highs. Diligent traders may even ride some waves into a little extra income. Here's how.

1. Spread out the risk

In a bear market, the growth stocks take the biggest hit. This isn't a rare insight, but it's an important one to understand. While those bigger, sexier investments may well bounce back with the rest of the economy, the hit you take in the meantime may blunt a lot of the gains. As a result, you may be better off spreading out your portfolio so that more of your money is in lower-risk areas like T-bills or fixed annuities. Over the long run, these old reliables may not climb as quickly, but they'll keep you stable.

2. Think long-term

Yes, even in day trading. This is a general rule that applies even in the most bullish of markets, but it's especially applicable right now. First, think of where you want your stocks to be 10 years from now. Then, realize that you're not going to get there with any moves you might make this month or even this year. You can also apply this thinking to your finances at large. SoFi's top financial planners have a lot of great tips for riding out this downturn, such as not making big purchases (like expensive electric cars) that might save you only a few dollars in the current market.

3. Hit the books

One of the most important things to invest in right now might be your own education, especially if you haven't been in the market during a downturn before. Individual stock tips are great, but financial classes can give you the fundamentals you need to build an overall strategy. Online courses can be a great option, but make sure you pick the right sources. One Education offers a Stock Market & Trading Beginner's Bundle geared toward journeyman investors and taught by a diverse panel of financial experts and entrepreneurs. The 12 courses cover everything from basic risk management to specific tools like candlestick patterns, and you can learn on your own time.

4. Use the news

As a day trader, you're already insulated from many of the worst effects of the bear market. You buy and sell generally within the same 24 hours, so losses on individual stocks aren't likely to be catastrophic. If you're using some form of auto-trading or brokerage platform (and you should), you can protect yourself further by setting stop-loss alerts to sell when relevant news is set to come through, such as Fed rate changes.

5. Short sell

Short selling isn't for everyone, and it requires that you keep your ear to the ground a regarding trends. But most investors agree that this strategy works the best in a bear market, and some experts say it's the only time you should short sell. Focus on those growth stocks that stand to lose a lot of market share and ride them down, but keep a firm hand on the brakes if the market begins to recover.

6. Mind the cap

Steering clear of companies with a small market capitalization is a specific way to minimize your risk. While up-and-coming businesses can climb quicker in boom times, they stand to lose a lot more when the market is down. More importantly they can quickly lose more, making them a red flag for day traders.

7. Ride the rallies

Even in the most bearish of markets, rallies can and do happen. These are the bread and butter of savvy day traders. The most important thing to remember is that most rallies aren't won't be a total climb out of the bear market at large, especially early on. The key is to watch the trend lines. With each rally, you'll want to jump on as things start to climb but get out earlier than the peak of the previous rally. As long as the market at large stays in bear territory, the highs (and the lows) will get a little lower each time until a proper recovery starts to take hold.

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