Since the official declaration of the Corona Virus as a pandemic by the World Health Organisation, the international stock markets have witnessed a dramatic decline, sending the investors into a tizzy.
While the stock market crash has led to immense panic among the current investors & traders, it has imbued new hope among aspiring ones.
As per experts, recovery of stock markets is an excellent insight since the Corona fear is likely to fade and on its fag end. All said and done, smartness is as crucial as good luck to help you be the unprecedented king of the stock market.
So, here are a few trading strategies an trader or investor could adopt to deal with the stock market crash that the world is facing this year.
Do Not Short-Sell
Selling short isn't an easy decision for a majority of investors. Firstly, it is not easy to hit the bull's eye when it comes to the timing, and secondly, the short-sellers may experience losses from the gains. Thus, it is best not to short sell stocks and let the pros take a chance at it. Instead, buy on the dip.
Evaluate Your Risk Tolerance
Do not invest or trade more in the markets over and above your risk capacity. Invest in such a way that you are always prepared for stock market crashes and in a win-win situation, should the market witnessed a decline in the future.
Buy Put Options
It could be a good strategy to buy put options to protect the stocks. Taking this route could prove beneficial as one is buying opportunities in a way similar to purchasing insurance. When the value of a stock witness a fall, the put option increases. But remember that if the stocks see a boost, you may lose the money paid for the option.
Maintain Good Amount of Liquidity
When the market is witnessing a crisis, you should never miss out on the opportunity to invest. Read the market and gauge it well. Should you feel that it has broken all the technical support, and may or may not crash further, step foot into the market carefully by investing small. For that, it is essential to have an ample amount of liquidity.
Study the Past Market Trends
An in-depth analysis of the history of the market crash will provide an insight into the market trends. The study of the past market trends includes an extensive review of the price trends.
That refers to the direction of the market as well as its momentum. Once as an trader or investor has identified the market trend, it is become easier for him to take the decision. For maximum gains, an investor must always buy at the bottom of the downward moving trend and sell at the topmost of an upward trend.
Do Not Go by Your Instincts
It is a human tendency to follow the crowd, and this holds equally true for traders & investors in the stock market. When the prices are escalating, the knee jerk reaction could be to buy stocks before the prices reach higher quickly.
At the same time, when the prices are falling, investors rush to exit before the prices can fall even further. In the first case, you may end up buying a share at 100, which you may have otherwise bought at 90, and in the second case, you may sell a stock at 90, which you could have otherwise sold at 100. As that will not help you with your money-making endeavors.
The Bottom-line of it All
The goal of an trader or investor is always to be rational and study the markets with a keen eye. Your rationality and awareness will help you stay afloat when the market is continuously dipping. Facts and data cannot be undermined when it comes to being a smart investor.
Remember to continually strive to eliminate risks and also preserve liquidity and safety at the same time. No one but you will decide the direction you would like to take as an investor in the stock market.