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Warning: don’t make this ASX 200 bear market mistake

The S&P/ASX 200 Index (ASX: XJO) has entered a bear market in March. For those that may not know, a bear market is when the share market falls 20% or more from its high in a short space of time.

Despite a rally of sorts this week, Aussie investors are still spooked. No one quite knows what these ASX 200 shares are really worth. But before you invest all of your cash for fear of missing out on potential share price increases, take note of this one classic bear market mistake.

What is the bear market mistake?

I’ll say that I’m no big fan of market timing. I think it’s near-impossible and there’s a big slice of luck involved. But I do believe in bull traps.

A bull trap often occurs in a bear market, where ASX 200 share prices are trending downwards. However, it’s not like we see a straight line in valuations for a number of months. Economic stimulus, Federal Cabinet announcements and company news will all impact share market movements.

The bull trap is effectively a false signal of a recovering market. When shares surge higher, investors think we’ve hit the bottom and start buying aggressively. After all, no one wants to miss out on potential ASX 200 share price gains, right? But the bull trap is a false signal and many investors can start buying aggressively so they don’t miss out.

We might have seen a bit of this in the past week. We’re still yet to really see the full force of the coronavirus pandemic here in Australia. Australia looks to be several weeks behind the United Kingdom and USA. Even in the USA, where cases are skyrocketing, markets are surging higher on large stimulus packages.

However, there’s only so much that stimulus can do for share markets when the public health crisis takes over. While leaders are hoping to dodge a recession, that looks unlikely. For the record, I still think now is a time to be brave and invest in ASX 200 shares. That doesn’t mean that I think we’ve hit the bottom of the market.

How to invest in ASX 200 shares right now

While markets may fall lower in April, that doesn’t mean now isn’t a good time to buy. Some ASX 200 shares have been hammered lower, but may be undervalued. Whichever way you go, try and drown out the market noise and avoid any bull traps.

I personally am watching shares that could hedge against the coronavirus pandemic right now. Demand for Telstra Corporation Ltd (ASX: TLS) is unlikely to fall as more Aussies start to work from home. Similarly, we’re all going to be using energy which may put Origin Energy Ltd (ASX: ORG) in the buy zone at current prices.

Whatever you do, invest in a calm and rational way. Don’t rush into the market and start panic buying shares. There will be more ups and downs in this current ASX rollercoaster. Buy high-quality companies with a long-term horizon and only invest what you can afford to lose.

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.