The result of the recent events due to COVID-19 pandemic has sent the stock market into a meltdown. Panic has spread among investors and knocked businesses down with a great force. The experts suggest that the worst is yet to come. In the times of uncertainty, it is for every trader to know what to do when stocks go down and how to take advantage of a stock market crash.
Why Are Stock Prices Falling Today
Let’s draw a clear picture by summarising the news of the past few weeks. More countries have been going into lockdown, including Italy, Germany, France and the UK. Manufacturing companies are forced to announce shutdowns. All this has had a direct impact on the economy, domestic stocks, investor confidence and market sentiment. In addition, there’s this pesky human factor – when we panic, we do so as a crowd.
What To Do If You Think A Stock Will Go Down
The general rule of thumb is to overcome the trading FOMO and resist the market frenzy.
If you feel the rush to get out before prices fall too far, take a step back to see if the idea still seems lucrative. Assuming that you want to sell a stock for $100 today that was valued at $150 yesterday, such an approach to making money is no longer deemed logical.
On the bright side, the lower the stock price, the more stock you can acquire with your reinvested capital. In other words, the investors that tend to hold onto their investment don’t fear the bear market and are focused on the long-term trajectory.
One thing everyone needs to remember about a bear market is that no matter how bad and hopeless it may seem, it will end eventually.
Another piece of good news is that both long- and short-term traders have equal opportunities to make money in a down market and protect their trading accounts from unnecessary losses.
Best Time To Invest In Market
Success depends on factors, such as timing and strategy. Experience plays a big role too, hence why seasoned investors see a falling market as a big opportunity. Right now, try to watch traders with big portfolios closely and learn to separate the husk from the grain.
What Is Short Selling In Share Market
Short selling is a trading strategy that focuses on generating profit from falling stock prices. Unlike the famous “buy low and sell high” trading mantra, traders sell high and buy low. The profit is made on the change in the asset’s price.
There are multiple advantages of trading CFDs, which include the following:
- the trader doesn’t need to own shares or assets in order to be an active member on the market.
- when trading CFDs, traders can choose to go long or short, regardless of the current market sentiment.
Short selling increases the number of trading opportunities, especially in the current flow of events. If the trader’s calculations are correct, the reward may be equal to or exceed that of early Bitcoin speculators.
Before you hurry to open your account and start trading CFDs, there are certain risk factors associated with short-selling. For instance, the exposure to losses is significantly higher if the price of the asset doesn’t behave as expected. What’s more, if the price increases, the trader could potentially have to deal with unlimited losses.
Want to know how to safeguard your trading account during a stock market crash? Check out the must-do list here.