You set your trading positions last night and everything was looking great. But then you woke up today to find the stock market crashing. And just like that, within a few hours, everything has turned upside down.
While the pros can easily navigate themselves correctly, the challenge is big for beginners during such a situation. Lacking the necessary experience, they often end up panic selling and sustaining losses, which go on to significantly hurt their portfolio.
Of course, the key is deeply understanding the market movements, recognizing opportunities and acting quickly to survive a meltdown. But then that’s easier said than done. Unless gone through a good technical analysis course, the traders will largely struggle.
If you’re a stock trader, here are five tips to survive when the market is bleeding:
1. Outline your risk tolerance level
It’s possible for stock traders to make money during the economic downturn. However, it isn’t a game for all. A lot depends on how much risk the traders can take among various other key factors.
So, how you respond to a crash should depend on your risk tolerance level.
For instance, if you have a higher risk tolerance level, you can stay in the market for longer before pulling any strings. Contrarily, if you can’t take risks, finding an exit point quickly is a much better option.
2. Have hard stop-loss positions
When the market is melting, one of the first tasks-at-hand is to cut losses. Sure, you can’t do this with each of your stocks. And you should avoid panic-selling.
But having hard stop-loss position is important – at least for the under performing stocks – to prevent any hefty loss.
Remember, one of the good ways to make money in the stock market during the downturn is to prevent or cut losses.
So, even when you have a high risk tolerance, dump the risky stocks and protect your portfolio from further losses.
3. Settle down and watch
The stock market is very dynamic. Things change quickly. Once you have cut the losses, it’s a good idea to hold yourself back and watch.
Look at how the market is unfolding. Watch closely the little and big factors that are affecting the stock prices.
Go through the advice and opinions of market pundits and experts; listen to what they have to say. Talk to your consultant, if you have one.
Just do not rush like everyone. Don’t rush to sell your stocks and exit the market. Don’t rush to thoughtlessly buy a chunk of stocks.
Take time out to analyze the market properly. And if you’re positioned well, maybe enjoy a small break.
4. Buy the dip
Buying the dip isn’t always the right idea for everyone. Especially for the stock traders who aren’t in the game for the long term, it isn’t suitable.
Moreover, the traders who are already in loss, they should be careful about buying more stocks and adding unnecessary weight to the portfolio.
That said, you will find many good opportunities and reasons to buy stocks when the market is bleeding.
When others are selling, find good companies and purchase their stocks at a low price. It’s a much better option than trying to short market drops.
Of course, when you’re buying the dip, you must make sure the decision matches your goals and suit your portfolio.
5. Bet on the safer sectors
When the economy is experiencing a downturn, every sector would struggle. No one is safe!
However, there are some sectors that remain relatively safer. Even if their price falls, it quickly picks up at the slight view of any positive news.
When you’re trying to buy the dip, it’s a good idea to bet of these sectors. It includes healthcare, discount retail, telecommunication, utilities, consumer staples, and more.
Moreover, when you’re sustaining a loss in your portfolio, these safer sectors should be the last ones to be exited from – unless it makes sense otherwise.
Again, during a stock market crash, no sector is safe. You simply want to bet on those where you will take the least loss and you will enjoy faster returns when the bulls return.
These are five tips for the stock traders when the market is bleeding. None is fool-proof; they don’t guarantee to save you.
After all, it isn’t about what you do during the downturn but instead what you did weeks and months before this meltdown.
If you were working along the lines of a good stock trading strategy and plan, such market crashes aren’t difficult to survive.
So, if you’re really struggling in this crash, it’s a great sign that something was wrong with your at-large strategy; that you weren’t trading smartly. So, audit your strategy now and fix the loopholes to effectively combat the next stock market crash.
If you’re still a beginner or lack the necessary knowledge around technical analysis, sign up to any of the good online trading courses and amp your skill.