Stock Market Is In A ‘Down Mood’. What Should You Do?
Do the consecutive drops in the stock market drag anxiety and fear? Have you been in the extreme panic of selling?
Well, it is understandable to lose our mind as losses seem to keep accumulating! However, being panicked is not only an option on the table. We might be too scared to look at the bigger picture for many clever trade actions.
This article is more a reminder of things you might have known before than an instructional article. Hope it could soothe your angst amidst such a chaotic situation!
Take A Deep Breath And Collect Yourself!
“How can? Don’t talk like you are losing your money like me.”, you might respond like this when we tell you not to panic!
You can doubt the effectiveness of maintaining the presence of your mind. Yet, angst does not bring you any good, does it? Be true to the fact that good decisions only come along when you are calm. It is about psychology and the control of your emotions!
What about financial perspectives? Such a ‘down mood’ in the stock market is not the first time. We have been through many tough times in history! Lessons from the 1929 Stock Market Crash still remain valuable to modern traders and investors!
Other crashes and rallies of the stock market are the Covid-19 pandemics and the 2008 economic crisis. An important insight is market cycle includes both ups and downs. In the nutshell, it is impossible to avoid the downtrends of the stock market!
“Sometimes what goes up is just going to come down a little bit — or a lot”, Vox presented this perspective in its article in early May 2022. It highlights the cyclical patterns of the market. After the storm, it can be a nice day coming! So, it is not necessary to be in awe of instantaneous downward moves!
Determine How Many Risks You Can Take
Risk tolerance is among the most important elements in your stock trading strategies, especially amidst the steep market correction.
Instead of betting all your money on the uncertain game, you need to calculate how many losses you can handle in how long! It plays an important role in determining whether you set the goals and your holding period.
In a nutshell, the factors that you need to consider when sitting on your risk tolerance are
- Your investment time horizon.
- Cash requirements.
- Mental states when suffering from losses.
Be Ready To Suffer From Losses, But Limited Ones
Don’t ever expect no-loss trades as it is an illusory dream! The volatility of stock markets opens the chances to win high profits. It is also the challenges that might make you lose!
As a result, you should learn that risk is unavoidable, yet you can learn to control and maintain it at the levels within your risk tolerance! Grasping the way the stock market works is the key to developing a viable strategy with timely sells and buys.
Also, there are many techniques and strategies that you can use to reduce risks you undertake. Hedge funds or alternative investments in real estate per se can have practical support!
Shift the Focus Into Longer-Term Goals
Daily updating the financial news of stock market is advisable. Yet, setting a longer-term goal is essential to save you from falling into the market traps. It guides you through tough days as you are not distracted by the seemingly-frightening downtrends. Of course, you should take your risk tolerance as among consideration factors for goal settings!
Long-term investors believe in the brighter future of the market and economy. So, it stops them from panic selling amidst the transitions between market movements.
For example, many investors decide to sell off their holdings when the market plummeted in the 2008 financial crisis. They missed the opportunities to earn high profits in March 2009 when the market rally took place.
Another instance for the most recent event is the recovery of 2020 stock market. The S&P 500 climbed by gut-wrenching 35% within for weeks in March 2020. At that time, the market stepped into a bear market for the first time in more than a decade!
And now the stock market has been in its tremendously depressing days. After glorious days, there are some bad days that you should be ready for. A harsh truth is that gloomy days will come no matter what!
Therefore, you should not panic or lock in your losses by selling your holdings amidst the chaos. Spend time and effort developing a bear market strategy as a shelter of your portfolio at such tough times.
End Notes
To wrap up this article, we want to highlight the underlying principle that you should bear in mind, be the master of your own game!
Instead of being led by the ‘moods’ of the market, you should control your emotions and collect your thoughts to be clear about what you want and what you can handle!
Do you agree with us? Please tell us what you think in the comments!
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