How to trade in stock market correctly during crisis

Trading in market during the crisis often scares novice traders, who believe that during the crisis the earnings can be lost. And if we examine the trading statistics, we could notice, that the biggest earnings are made during the crisis. But only few ones manage to do this, the majority loses its capital. Why? Psychological factors: unwillingness to change, inability to profit in a falling market, an emotional drain. Below are a couple of tips on how to trade in a crisis.

Trading in market in crisis

Outset that we are talking about long term trading. Trade during news is the volatility and scalping strategy works here. What traders associate with the crisis? With the rapid growth of prices, the depreciation of the national currency, rising unemployment etc. One of the main negative impacts of the crisis on the virtual markets — chaos. If the rising of cost of, for example, US dollar is confirmed by economic factors, as you can see on the example of  2000 or 2008, the fall virtually uncontrolled and unpredictable.

The secrets of successful trade in crisis:

  • don’t trust technical analysis. Trends follow each other, without having to start the levels of support and resistance make their way one by one. Why? The natural reaction of traders. If in calm markets there are cold calculation and economic factors, chaotic markets come into force with emotions, speed, intuition. It is logical that technical indicators are based on historical data and will not give accurate signals. Focus on fundamental analysis;
  • take your time! Changing trends in crisis allows you to close with a profit almost every trade. This requires a large deposit and patience;
  • increase stop-loss. Yes, it’s a risk, but in many cases it is justified. Short stops will be constantly cling to, closing your position.

Trade in the crisis is not for everyone. Imagine what it’s like to see how the deposit is fading away due to a long fall. But the same position can yield a profit in case of reversal of trend.

One of the biggest misconceptions to think that even paid trading strategies or advisors are able to bring unconditional profit in any market condition. Alas, falling or rising markets are radically different in their behavior, and technical indicators are not likely to provide equally accurate signals in such conditions. For this there are such things as statement (statistics on the strategy for a certain period), and a demo account for testing.

Do not get hung up on the trade currencies. In the currency crisis show the highest volatility in comparison with other markets. The reason is simple: the cost of other assets denominated in money, because the assets are more stable as to a lesser extent react to changes in prices. The value of the currencies relative to each other is changing almost every minute. Example: USD/EUR.

trading in stock market

How to choose a trading asset to trade in the market in crisis:

  • indices. Since they represent a reduced index of the stock market, it is less likely that all companies in different industries will fall with the same speed. Exception: the fundamental news. Those who closely monitored the Chinese market in early 2016, well-earned 7% drop in the Shanghai Composite;
  • the commodity markets. In a crisis it is easy to earn on gold, whereas on other raw materials (metals, wood, oil) prices fall because of lower demand. Gold is regarded as a reserve asset. Trading in crisis with precious metals is one of conservative and profitable strategies;
  • currency pair using hedging strategies or arbitration. Such a safety strategy can minimize the loss even in a falling market.

The market in a crisis has its own unique features, as well as trade in quiet markets. You just need to find your strategy, hone it on a demo account and try! Good luck, patience and intuition!

About the author

JOIN THE DISCUSSION