Market disruptions are something every stock trader needs to be prepared for. Though commission free trading platforms have made it easier and more rewarding for people to get started in stock trading, there is always some uncertainty out there.
Crises such as the recent Covid-19 pandemic and the semiconductor chip shortage have affected various industries. Stocks in your portfolio would have dipped significantly during this period - bad news if you were keen for short-term growth. Investors with a longer-term approach would have held onto their stocks, seeing the long-term promise in them. But there are strategies to deal with crises and market disruptions.
Bloomberg interviewed some traders and investors to find out how they would deal with a market crisis:
Stick to the Familiar
One of them insists on sticking to industries and stocks they are familiar with and have belief in. You always need to look deeper beyond the rumors and chatter surrounding stocks and industries to see the real risk and opportunities around.
Objective Decision Making with Your Head, Not Heart
Another experienced investor advised not to let emotions get in the way of your decision making. When the markets turn volatile, like the typical October volatility, it is easy to waver between opinions and strategies and make an entire mess of matters. If you are patient through the volatility, you can even take advantage of it and outperform the market. This was the opinion of an asset manager, the kind of people who look for opportunity in just about any situation.
Follow Systematic Trading
There are proponents of systematic trading as well. That’s where decision making is differentiated from gut reactions. It involves building investing models that depict your trading strategy, and then observing the markets carefully to see how those models perform in relation to the movement of the market. The challenge in systematic trading is learning to build models for moving with the changing markets. The models must also be able to incorporate information about the markets in a straightforward manner. They must be aggressive to the changing markets.
Set Priorities and Stick to Them
When it comes to short-term data, you need discipline to objectively examine it and not overreact. For that, it is important to set your priorities right and make a list. On a trading day, keep going back to the list so that you don’t get distracted by a headline or market chatter. Always keep reminding yourself of your priorities.
Question Your Own Assumptions
It also helps to be cynical of your own market assumptions. Keep questioning them and you would also be able to know what the market is telling you.
Meanwhile, to deal with the volatility of October and a potential market crash, experts at Motley Fool have suggested a few stocks from the advertising (The Trade Desk - $TTD), fintech (StoneCo - $STNE) and cloud computing (Cloudflare - $NET) industries.
Get started in stock trading with experienced direct market access brokers. Just remember the abovementioned points whenever you make a decision.
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