Risk Management

Why Automated Investing is Essential for Thriving in Bear Markets

May 22, 2023
5 min

Bear markets are a crucial time for the intrepid investor. Deep downturns in a bear market are unavoidable, and portfolio-breaking volatility is a career-defining experience for any investor. 

So, no matter how knowledgeable or skilled a trader may be, finding tools and proven strategies help alleviate the risk an investor is taking on when facing the mouth of the bear. 

Automated investing is a viable option for investors when looking to tread through the murky waters of a bear market. 

With algorithmic trading accounting for nearly 75% of all trading volume, here’s why automated investing is essential for thriving in down markets. 

What It Takes To Thrive In A Bear Market

As uncomfortable as it may be, a bear market is a necessary (and healthy) part of the investor market. Because they occur, on average, once every five years, it’ll probably do you some good to learn proven investment strategies to help you trudge through the storm.

Here’s what it takes to thrive in a bear market:

Bargain Shopping

Bear markets are highlighted by markets falling 20% from their recent high. This marks an excellent opportunity for investors to get in on assets whose fair prices exceed their current market value. 

Gathering Your Resources

No one can predict the market’s bottom. It could take months or even years for the market to recover. So keep a long-term outlook, gather resources, and slowly accumulate assets. 

Hedging Risk

Risk is an obvious factor to hedge against in a bear market. As prices are in continuous freefall, it becomes the investor's responsibility to pick assets and investment vehicles that offset the initial losses of the bear market.

Here’s how automated investing can help you deal with these three criteria.

Removing Emotion From The Equation

The ability to make calculated decisions becomes especially important in a bear market. When prices are in a freefall, a long-term investment outlook becomes harder to hold. When you’re in a bear market, it’s harder to see asset prices as a bargain. 

But that’s precisely what you need to do to be a winning investor. 

Take Warren Buffett as an example. He is a contrarian trader. He can look past current market sentiment because of his expertise and experience. He doesn't succumb to the emotion of the masses. He has his models and a strategy that works for him, regardless of current market sentiment.

How can you be more like Warren? What tool could you use to rule out emotion? Automated Investing.

Consistent Decision Making

Automated investing is, well, automated. The decisions made through this strategy are formulaic and algorithmic. There’s a science to the madness of automated trading that human emotion cannot taint. So every decision made through this strategy is consistent with the formula and strategy you’ve devised.

When markets are bearish, consistency becomes the key to success. When you have a strategy that works, you ride out the wave for as long as it’s high.

How? Because a consistent strategy takes out the guesswork of market timing. Investors often make the mistake of timing the market bottom instead of maintaining a consistent investment approach that maximizes profits. 

Everyone knows that time in the market is better than timing the market. Charles Schwab released a report on what returns to expect, depending on when you invest in the markets. The calculations covered 2 decades, spanning 2001-2020. 

Having perfect timing beats out everyone else, but realistically, how often can you make the ideal investment?

No, the best thing you could do for your money is to invest when you can - not when you think you should. 

Even bad timing beats holding cash. 

Source: Charles Schwab

And even when a strategy doesn’t work, consistent follow-through on a strategy provides investors with the data points needed. Like a science project with an experiment and control group, a closely-followed system is the control group to base your experimental strategy. In this strategy, the investor can twiddle and tweak as you please. 

24/7 Monitoring and Adjustment + Data Driven Insights

Automated investing provides continuous monitoring of the markets, even outside of regular hours. With more data points available, investors garner a comprehensive view of the overall market. They could utilize historical data and trends to optimize portfolios to fend off bear market downturns. 

This provides timely risk management and push for smarter investment decisions and allows your portfolio to reactively adjust to market changes in real time. With predefined actions coded into the software, investors can stay proactive and adapt to changing market conditions. Should an asset drastically drop, automated investing can generate alerts to push investors to take action. 

This continuous monitoring process also allows the investor to periodically adjust the asset allocation of their portfolio to maintain the desired risk and return profile.

What To Expect From Automated Investing With Peccala

If you had invested 1,000 dollars with Peccala on January 1st, 2022, you would have earned $2,2224, growing 222.39% in only 16 months. 

And that’s not an exaggeration. 

Here’s a screenshot of Peccala’s ROI calculator:

Proprietary trading algorithms on systems like Peccala make it easier to take a hands-off approach to investing. Where other platforms will trade equities or fixed-income assets, Peccala opts to trade crypto derivatives, specifically perpetual futures. Because perpetual futures have no expiry date, investors can take a long-term view of crypto prices and go short and long. It opens up an entire world of profiting off price movements and market sentiment - and did we mention the relatively low capital requirements?

The features of automated investing make winning easier in the long run, even with riskier types of assets. 

Data-driven insights give investors a decisive information advantage, objective decisions speed up trade execution and keep you in the markets, and a consistent, disciplined strategy reduces the likelihood of impulsive and emotionally-charged decisions. 

There’s no other way to say it. Automated investing is an essential tool to thrive in bear markets.