How to Survive a Stock Market Crisis – TIPS & TRICKS

What is a stock market crash?

You speak of a stock market crisis or crash when the financial markets experience a sudden and hard drop of 7% to 15%. When the stock market steadily drops over a short period, now by 1% and then by 0.8%, etc., then we speak of a bear market but not a real stock market crash. Often a stock market crisis is also preceded by a period of great wealth, inexplicable increases and bubble formation.

Can you predict a stock market crash?

There are certainly signals that you can reason that a stock market crisis could possibly be near. But nobody can really predict exactly when or how hard a stock market decline will hit. There are too many elements that influence the financial markets.

Signals that can be taken into account are excesses. For example, think of longer periods of low interest rates. Money can be borrowed cheaply and does not flow to the real economy, but to investments and financial products. In that case, the value of a share can be too high in relation to the intrinsic value or profit of a company. When this bubble bursts, it can cause a chain reaction on the stock exchange.

Political changes or decisions can also have a major impact on the financial market. For example, if war breaks out in a large oil-producing country or a takeover threatens, this can cause the oil price to rise sharply. These uncertainties can lead to major shocks on the stock exchange.

How long does a stock market crash last?

The duration of a stock market crisis depends somewhat on the impact of this crash on the entire economy. Since most sectors are interrelated, the fall of one particular sector often drags other companies down with it. In general, a really hard crisis only recovers in the course of a number of years after the fall on the stock market.

The stock market crash of 2009 mainly affected the investor, but the average saver felt this crash less hard. This is partly due to the state support that large system banks received in order to survive.

However, during the Great Depression in the 1930s, the entire economy was hit hard. Banks went bankrupt without government support, and ordinary savers lost all their money with all the known consequences.

The recent event with Corona can also be classified as a stock market crisis.

Limiting the damage

How do you go about it yourself if you want to limit the damage of a stock market crisis? First of all, a good asset allocation is an important first step. Spreading over different sectors, currencies, financial products , etc. Dare to hedge large stock positions using put options . It will cost you a small premium, but you can limit large losses with it.

In addition, as an investor you should always invest with a sufficiently long investment horizon. You use money that you do not think you will need in the short term – five to ten years. If a stock market crash does occur, you can wait out the recovery. So definitely do not invest all your savings.

Staggered entry has proven its worth statistically. Invest a certain amount in a basket of selected investments step by step each month. By not buying all at once, you can spread your purchase price over a longer period. If a stock market crash occurs at that time, you also systematically buy the bottom price and build up your investments in this way. This is also called the Dollar Cost Averaging strategy.

Follow the news and be realistic. Trees don’t grow to the sky, if you hear alarming messages, dare to sell some of your investments now and then. If necessary, skim off the profit made and let your initially invested amount continue to yield. That way you keep some cash on hand to invest when the stock market actually takes a dive ( buying the dips )!

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Strategies for Day Trading Day trading is the buying and selling of a financial instrument within the same trading day or even multiple times during the day. Profiting from small price fluctuations can be very lucrative if done correctly. However, it can be a dangerous game for beginners or investors who do not adhere to a well-thought-out strategy. Furthermore, not all brokers are suitable for the high volume of daily transactions by traders. Nevertheless, some brokers are specifically designed for day traders. Knowledge is power In addition to some knowledge of basic trading procedures, day traders should be aware of the latest news and events that affect the markets — What will interest rates do? What does the economic outlook look like? Etc. Therefore, do your homework. Make a list of stocks you would like to trade and educate yourself about these companies and the markets in general. Keep yourself updated on business news and visit reliable financial websites. Set aside money Determine how much capital you are willing to risk per trade. Many successful day traders risk less than 1% to 2% of their account per trade. If you have a trading account of $40,000 and you are willing to risk 0.5% of your capital per trade, your maximum loss per trade is $200 (0.005 x 40,000). Use excess capital to trade that you can afford to lose in the event of a loss. Remember, it can happen. In addition to money, also set aside time Day trading requires your time. That’s why it’s called day trading. You’ll even lose a large part of your day. So don’t consider day trading if you have limited time. The process requires the trader to monitor the markets and spot opportunities that can arise at any time during the trading day. Acting quickly is essential. Start small As a beginner, focus on no more than 1 or 2 companies’ stocks during a session. Following and spotting opportunities and possibilities is easier with just a few stocks . It has become increasingly common to trade in “fractional shares”, which are, as the name suggests, smaller parts of a single share. This allows you to specify that you want to use a specific, smaller amount to invest. This means that, for example, Apple shares are trading at $250 and you only want to buy $50 worth of Apple shares, many brokers now allow you to buy one-fifth of a share. Avoid Penny Stocks You’re probably looking for deals and low prices. However, stay away from penny stocks . These are often illiquid stocks with very little chance of making a big profit. Stocks that are listed for less than $5 per share are delisted from major exchanges and are only available over-the-counter. Unless you see a real opportunity and have done your research, stay away from these securities. Time your transactions Many orders placed by investors and traders are executed immediately when the markets open in the morning, which contributes to price volatility. An experienced player can recognize these patterns and profit from them. For novice day traders, it may be wiser to observe the markets without trading for the first 15 to 20 minutes. Volatility usually levels off halfway through the trading day, and then starts to increase again as the end of the day approaches. Although peak hours on the markets offer many opportunities, it is safer for beginners to avoid them. Limit losses with limit orders Choose what type of orders you place for your trades. Will you use market orders or limit orders? When you place a market order, it will be executed at the best available price at that time — so there is no price guarantee. A limit order, on the other hand, guarantees the price, but not the execution. Limit orders help you trade with more precision, where you determine a price (not unrealistic but feasible) at which the securities will be bought or sold. An advanced and experienced day trader can also use the addition of options to his/her strategy to hedge his/her own positions. Be realistic about the profits A strategy does not always have to make a profit to be profitable. Most traders only make a profit on 50% to 60% percent of their trades. However, they make more on their profits than they lose on their losses. Make sure that the risk on each trade is limited to a specific percentage of your account and that your entry and exit strategy is clear and written down. Keep calm There are plenty of times when the markets will test your nerve. As a day trader, you will have to learn to control greed, hope and fear. Decisions should be made based on logic, not emotion. Stick to the plan Successful day traders need to act fast, but not think fast. Why? They have developed a trading strategy in advance, along with the discipline to stick to it. Instead of chasing profits, it is important to stick to your formula. 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Trend traders look for successive “higher highs” or “lower highs” to determine the trend of a position. By riding the waves of these trends, trend traders attempt to profit from both rising and falling market prices. Trend traders therefore attempt to determine the direction of the market, but do not attempt to predict the price of instruments. Typically, trend traders jump in when the trend is identified and let go of their position when the trend disappears. This means that in periods of high market volatility, trading in trends becomes more difficult and the number of positions in them decreases. Swing Trading The moment a trend breaks is when swing traders jump in. At the end of a trend, there is usually some price volatility as the next trend emerges. Swing traders start buying and selling when that volatility occurs. Swing traders typically hold their positions for longer than a day, but for a shorter time than position traders. Often, swing traders create a set of trading rules based on technical analysis or fundamental research. These rules and algorithms are designed to determine when to buy and sell a security. While a swing trading algorithm does not have to predict the exact peaks and troughs of prices, it does require the market to move widely in one direction or another. Sideways markets or markets that remain at a certain level are risky for swing traders. It is important to note that Plus500 does not offer hedging and swing trading. Scalping The investment strategy called scalping is one of the fastest strategies to be used by active investors. It involves investors profiting from various price differences caused by bid-ask spreads . This strategy works best by creating a spread by buying at the bid price and selling at the ask price, thus receiving the difference between the two prices. Scalpers hold their position for a very short time, which reduces the risk of scalping. 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How to Survive a Stock Market Crisis – TIPS & TRICKS

What is a stock market crash?

Can you predict a stock market crash?

How long does a stock market crash last?

Limiting the damage

Start investing on the stock exchange

Join thousands of others?

The value we offer:

See also

Day Trading Strategies for Beginners – TIPS & TRICKS

Popular Active Investment Strategies – THIS IS WHAT YOU NEED TO KNOW!

Recovery of this stock price on the London Stock Exchange is too difficult

Forex Investment Strategies – TIPS & TRICKS

Expensive VS Cheap Stocks – THIS IS WHAT YOU NEED TO KNOW!

Differences between stocks and bonds – THIS IS WHAT YOU NEED TO KNOW!

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