The depth of economic contraction is slightly less relevant vs. the duration of the recovery. So, even when the world is about to face the worst recession of the modern era, the stocks can continue rising. Because many market pundits believe we will have a quick, V-shaped rebound once this pandemic is over and the economy has hit the bottom.
However, that said, it doesn’t mean the stock market will have a decent run in the coming weeks and months – and that things will be okay. These are unprecedented times that demand a refined approach from the stock traders. It’s essential that you give your existing trading strategy a hard look – and then give it an apt tweak to adequately deal with the challenges of now.
These are periods when a lot of money is lost and a lot of money is made in the stock market. You must take proper measures to minimize any possible loss, combat risks, and optimize the returns. Of course, this is easier said than done. When the entire ecosystem is in the midst of Fear, Uncertainty, and Doubt, it’s not easy to outsmart the market and make money off of it.
Adequate experience and knowledge around technical analysis will be pivotal for the stock traders in the ongoing events. While this slump might be the worst in recent memory, you will at least have a basic idea as to what should be done at present if you have sailed through the previous downturns. For instance, a few weeks back when the market touched the low, so many stock traders ran to panic-sell their holding. It was a bad decision. They ended up with big losses. If you have fair experience, you would steer such blunders rather easily.
So, stock trading during recession certainly becomes slightly reassuring if you have enough experience or if you’re technically adept. You would better understand the market volatility, see trends of beta trading, analyze the US markets, and make several other key breakdowns before making your move. Lagging in this can pose many different difficulties for the stock traders in effectively trading during such slowdowns. In such a case, your priorities should be different for the immediate span.
Instead of trading – and eventually overtrading and ending with losses – your close goal should be to learn the stock market in context to advanced technical analysis. Enrolling in online stock trading courses can take you a long way. Find a good course; make sure its curriculum fits your distinct needs and requirements; go through that training. You will be exposed to advanced concepts like RSI, Elliot wave theory, Bollinger Bands, mean reversion, symmetrical distribution, random walk index, and much more depending on the stock trading courses you have chosen. You will learn about growth investing, short selling, trend following, momentum investing, flag pattern, and gap strategy. So, formal learning through good stock trading courses will not only help you in the short-run to sail through this recession but also position you much strongly in the long-term.
Once you have an objective understanding of the real-time market on the back of technical analysis, you will have calculative measures on how to go about with your trading or investing during the recession. Generally, preventing yourself from over-trading should be of a foremost priority. Next, instead of making immediate moves to purchase stocks, you should fool-proof your portfolio first. This would include getting rid of the weak and underperforming stocks that likely have high risk-reward ratio. In the process, you might lose some money. But it’s essential to take the step before these stocks hurt your portfolio extensively.
Next, analyze the trends and buy the dip. Of course, timing the market is not possible. But allotting a close look to find emerging opportunities can end you with great deals. At the same time, you should keep away from buying stocks in companies that are over-leveraged and have poor balance sheets – no matter how much stimulus they pump in the infrastructure and how many promises they make. You want to go with companies that have low-debt and good cash flow; those that are managed well by a group of competent people who know what they are doing.
Similarly, you want to stay away from select industries that will expectedly do badly during a recession (like construction, food, and hospitality); stick to companies that will trade fairly even in this economic downturn (like healthcare, utilities, and discount retailers).
Following, there are plenty of nuances and factors you should consider. Like, going after the cyclical stocks, knowing when the deep correction phase has bottomed out, regularly reassessing your holdings to ensure their stability, thoughtful allocation of your resources, and more. But then again, if you have a strong understanding of technical analysis and you have enough experience, you will be okay. Remember, while this recession is going to be challenging to deal with, it will also bring sufficient opportunities for the smart traders to amplify their portfolio.