This article is extremely important for people who are new to the
stock market and have not seen a market crash till now. Also this
article might be of immense use for the old players too.
I don’t say that I have not seen crashes like this before or have not
lost money in the crashes. Everyone has. Infact I was witness to some of
the worst crashes the markets have ever faced including the blood bath
of 2008. The crash of 2008 prompted me to rework on my investment and
trading strategy in the market.
Today when we are sitting on another big crash in the market which took
place yesterday, I felt it was utmost important for me to share a couple
of strategies which might protect your hard earned money. Again these
are just a few strategies which worked for me as an investor and trader.
I do not guarantee the success of these strategies. This article is for
the reference purpose only and thorough research and study on part the
traders is recommended and personal discretion in highly advised. We at
Moneypalm believe that you should not believe on anything that anyone
writes, but should study immensely and learn thoroughly so to can take
your own informed decisions.
So without wasting any more time, given below are the strategies that might help you survive the Stock Market crashes.
1. USE STOP-LOSS: Stop loss is a tool or technique
to minimise your potential losses in the market. It is an Order which we
place to sell a stock at market price when it goes down to a specified
limit. Inversely we can use Stop-Loss when we short-sell too. There can
be two strategies of using stop loss which I find relevant.
a. Placing Stop Loss below the support
level. The support level can be ascertained using the technical charts.
Breach of the support level indicates that there is a big possibility of
stock heading southwards. If you do not know how to read charts, keep
following us on our Facebook Page and visit our Educational Blog
TradeTalk regularly. We will explain charts and technical analysis on
our blog.
b. Analyse your comfort level and place a
stop loss at a pre decided level where it will not pain you much. This
would totally depend on what you find is best for you. I find myself
comfortable in placing a Stop Loss at 5%-10% below my purchase price.
This decision depends on several factors like the type of stock,
volatility in the market, current economic conditions, Industry
conditions, etc. You can ofcourse keep changing the stop Loss as the
stock moves up.
2. Diversify your stock portfolio based on industry
and capitalisation. Never ever put all your eggs in one basket. Try to
diversify your investments too. Never put all your money in stocks.
Invest in bonds, commodities, currency, mutual funds, etc so all your
eggs are not put in one basket and your losses are minimised.
3. Hedge your portfolio. This will always keep you
protected against the unforeseen market crashes. Hedging may minimise
your profits but will help you put a tab on your losses.
4. Keep booking profits at regular intervals. This
will give you an opportunity to re-enter the stock at lower levels and
will drastically reduce your Cost per share, keeping you safe from free
falls in the market.
We hope above tricks, when used wisely, will help you protect your
portfolio from the market crashes. Though we strongly suggest that you
learn the strategies in-depth so you do not make mistakes.
All the people who are associated with us are like our family and we at
Moneypalm care for your hard earned money and want you to have an
in-depth knowledge before you trade. Never invest on the advice of
others rather make you own wise decisions.
We wish you all profitable and crash free market conditions.