5 Useful Suggestions for Surviving a Market Crash

Market headlines aren’t exactly sounding cheery lately, leading some to fret that one other crash could also be looming.

How can your account survive if this happens? Listed below are five tricks to take into account:

1. Stay rational

This is solely a more constructive way of claiming “DON’T PANIC!”

Sure it might probably be unnerving to see market heat maps all flashing red, so that you gotta remind yourself to maintain a cool head and focus your energy into searching for profit opportunities.

After all this is definitely easier said than done. Not everyone can stay calm and picked up when watching their portfolio bleed out.

Take a few deep breaths and a couple of minutes to reply questions like these before taking any motion in the warmth of the moment:

  • Are there any changes in fundamentals that suggest it’s higher to chop losses?
  • Did market sentiment shift against your trade?
  • Is the asset still trading inside its usual volatility range?

2. Don’t be greedy

However, let’s assume you’re in a position to bank on big market moves and makin’ it rain.

Must you keep pressing your advantage?

Under normal circumstances, probably. But during market crashes, you would possibly want to contemplate playing it secure.

You see, investors are extra moody and sensitive in times like these, so risk appetite can shift on a dime.

Even the slightest whiff of a rebound or positive development can result in a sudden rally… before the gains are sharply unwound afterward.

In the event you’re already taking a look at decent gains from a selected setup, you may be higher off taking the profits. Just call it a day (and a bird within the hand), especially in the event you can’t keep your eyes on the charts for an extended while.

Either that or adjust your stops to lock in some winnings or close a part of your position just in case the market swings wildly against you sooner or later.

3. Be mindful of leverage

Leverage is a double-edged sword, which implies you would possibly find yourself gutting your portfolio in the event you don’t wield it properly.

While leverage gives you the flexibility to trade positions larger than your balance, it might probably also wind up closing your entire account if price moves against your trade.

As briefly mentioned earlier, asset prices are inclined to spike around when investors are feeling jittery.

Regardless that your evaluation is spot on and also you got the final direction right, you would still wind up getting the dreaded margin call simply because Mr. Market has a nasty mood swing.

4. Look into other asset classes

Trading during a market crash is just not so simple as shorting every thing.

Some markets don’t even allow short-selling while others have circuit breakers that prevent prices from tumbling any lower.

In the event you resolve to remain out of the markets during a drastic selloff, you would use the time to find out about other asset classes and financial instruments that might offer higher profit opportunities.

In the event you’re already dabbling into other markets, you would also consider rebalancing your portfolio to account for changing risk levels in stocks, commodities, or bonds.

5. Learn from previous market crashes

Lastly, reviewing how the markets fared during previous recessions would also give helpful insights on the best way to manage the ups and downs.

For example, recalling that the 1929 stock market meltdown sent equities tumbling by nearly 90% over a span of three years would bring some perspective to rallies and pullbacks.

Spotting the similarities and differences amongst these market crashes would assist you stay alert to patterns that might play out again and remind you to all the time keep your guard up.

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