Don’t rush !

​Current market conditions look quite dismal. The economy is on the verge of falling into a recession, and that misery probably has not been priced into the market yet.

However, the one great certainty of the stock market is that there will be cycles. It is impossible to time these cycles accurately, but every bear market will produce the conditions for the next bull market. These cycles create the market's greatest opportunity, so we should celebrate bear markets and prepare for the enviable bull market while things look quite dour.

Here is what to do to survive a bear market and prepare for significant profits when the bull market finally takes place:

1. Focus on reacting to changes in conditions rather than trying to predict.

Every bear/bull market cycle is different. Traders and strategists will study historical data and patterns and try to use them to predict when the market will shift, but that is of very limited value. The tipoff that the market is healthier will be obvious from the price action. It isn't necessary to guess the exact bottom in a bear market. The big gains will come in the following weeks and months as a new, persistent uptrend occurs.

The business media is always focused on market predictions because that attracts attention. The fact that no one is very good at it doesn't matter. Unfortunately, it sends the message that everyone should have a strong opinion about what the market will do next, but that isn't necessary. Success comes from reacting to changing conditions quickly and aggressively rather than trying to predict the future.

2. Clear out the baggage and raise cash levels.

The most important thing you can do during the bear market cycle is to protect capital and ensure you have plenty of buying power in place when conditions eventually shift. Far too often, investors will hold on to positions due to inertia or an emotional attachment. The thinking is that I'm already in this position too deeply, and it is sure to come flying back as soon as a new bull market starts.

Perhaps that will happen, but there is no reason that you can't buy this stock again in the future when market conditions shift. You may sell a favorite name at the wrong time, but you can always buy it back. This requires some vigilance, but it is very empowering to have very high cash levels during a bad market and not worry about how far a great stock will fall before it finds support.

When you clear out the baggage and have high cash levels, you will celebrate the bear market and even hope for more downside because you will be in far better shape to take advantage of future opportunities.

3. If you want to stay active, then focus on short-term trading.

Some of the best short-term trading opportunities occur in bear markets. Bear market bounces tend to be sizable and sudden because they catch most folks by surprise. These bounces can last for a while, and they will fool many people into thinking that the bear market is over. They can make for great trading, but if you go that route, then it is very important that you stay very disciplined and don't let a trade turn into an investment.

It is also important to recognize that in bear markets, the action is driven mostly from the top down. News and indexes determine the action, and there is far less opportunity for stock picking. When a real bull market finally develops, that is when stock picking will shine.

4. Work on the shopping lists, tracking positions, and research.

The most productive thing you can do during the bear market phase is to research and track stocks that you feel will do well when market conditions improve. It is the best time to dig into fundamentals and gain knowledge about how a company operates and how it will react to shifting economic conditions.

There are great ideas every day on Real Money, but many of these stocks will not really perform well until market conditions improve. Buying a great stock in a bad market is often not a very good strategy. A great stock needs favorable market conditions to produce superior returns.

I have a list of favored names that I follow and track. I'd love to take bigger positions, but I won't do it until I feel that market conditions are in my favor. I will trade these names short-term and add on unusual pullbacks, but I want to make sure my exposure stays limited until the time is right.

5. Cultivate active patience and positive thinking.

All of the activities I listed above are a variation of active patience. They are productive activities that prepare you to jump into action with extreme decisiveness when the time is right.

Bear markets can be long and grueling. They tend to wear you out emotionally rather than scare you out. It is important to maintain a positive mindset and to be confident that if you are vigilant and patient, there will be great opportunities. I know with great certainty that this is true, which is why I celebrate bear markets rather than dread them.