How to Make Money in the Stock Market During a Recession

By Jay P. Whickson

  • Overview

    During active bull markets, even a beginner can make money in the stock market. During a bear market, when everyone is singing the blues, you can make money in the stock market if you know what to do. In order to make money in the stock market during the recession, you need to do a little more research and think about stocks in a different way.
    Make money in the stock market when everyone else is broke.
    • Step 1

      Sell short. Many wealthy people understand that you can always make money in the stock market whether it's a charging bull or an aggressive bear. They make money in the stock market by selling short. Selling short is betting that the stock is about to drop. You simply sell shares and fill the order with shares that you purchase later once the stock price falls.
    • Step 2

      Beware of selling short naked. This doesn't mean that you sit at your computer without clothing. It means that you don't own any shares of the stock when you sell short and haven't borrowed them. In other words, you leave your trade uncovered. Many conservative short sellers use their own shares to back a short sell. They want to keep the shares, so after they sell when the price drops, they pick up new shares at the lower price to cover the sale. Naked shorters don't own the shares and don't borrow them, but intend to deliver shares purchased when the price drops. Even when you borrow shares, you should back the sell by a stop limit buy or a call. The SEC takes a dim view of those that sell stocks short and don't make delivery.

    • Step 3

      Protect your short position with a stop loss buy limit order. The order executes when the price rises to a specific point and triggers a buy at the limit price or lower. This way, if the price doesn't go up unexpectedly, you lose nothing. If it does, you purchase the stock at a specific price and cut your losses.
    • Step 4

      Sell calls. A call is an option that states you'll sell your stock for a specific price. The buyer isn't obligated to purchase the stock--he just maintains the right. The option has an expiration date, just like a coupon at the grocery. The purchaser must trigger the call before the date. If the price drops, they don't initiate the buy and you made money from selling the call. If the price rises, you have to sell your shares for that price
    • Step 5

      Be careful with naked calls. A naked call is just like a naked short. You don't own the stock, and intend to purchase it if necessary. The potential for loss is unlimited unless you have a stop limit order in place. You can hedge your bet with a purchase of a call at a higher price, which means lower premium or a stop loss purchase.
    • Step 6

      Invest in stocks that always grow during a recession. People always need clothing, groceries and a form of transportation. This doesn't mean you purchase stocks in the automotive sector. Most people attempt to keep a car running during a recession, and often do it themselves to save money. Look for auto parts stores, discount stores and even companies that produce food products to grow during low economic times. Think about the things that you do to tighten your belt, and look for companies that help to make money in the stock market during a recession.
    • Skill: Moderate
    • Ingredients:
    • Brokerage account

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