Investment and trading are not simple tasks. If it was the case, then everyone would be wealthy.
When markets are abnormally bearish, trending downhill or in a manner that goes against their holdings, it may be extremely challenging for traders and investors alike. When volatility and uncertainty are both on the rise, the situation is much more precarious. These kinds of occurrences are normal in the stock market and have happened many times before. The markets will always, at some point, move against you, and that's something any trader or investor needs to keep in mind. It's best to be ready for anything.
It takes a lot of practice, knowledge, and poise to learn how to trade or invest in markets that are bearish and volatile. This past year has proven it. Over the past 12 months, we have observed increased volatility throughout most financial markets. And so, what should we do? So, what happens next?
Let's go back to the fundamentals and go over the knowledge, character characteristics, and attitude you'll need to make it through these times.
1. Plan ahead 🗺
Always make a plan before entering a trade, and never let it sit too long. There need to be some sort of strategy behind each and every investment and trade you make. Prior to a purchase or sale, it's a good idea to write down some fundamental questions. For instance, how much do you hope to pay to get in? For what amount would you like to sell your company? Can you tell me about your stop loss? How much do you stand to lose? For what reason are you engaging in this trade or making this investment? These are vital inquiries in these uncertain times. Simply said, you need to get back to the basics.
2. Don't rush
Market volatility, and especially a panicked selloff, can prompt hasty decisions. People are often compelled to act on impulse due to the pressure and rapid price movement. Do not proceed in this manner! Don't rush anything. Try to maintain your composure and make the best of the situation.
3. Be patient with entries
While many traders and investors use the term "buying the dip," this phrase actually describes what is involved. Buying low requires a plan. The idea is to wait for the right moment to enter the market and then execute your carefully thought-out plan. When the market is falling and volatility is strong, patience is rewarded. Take caution when issuing limit orders.
4. Know your timeframe
Do you plan on trading a day trade? A month? Or what about 5 years? You can get a sense of whether you need to be more hurried or patient by asking yourself these fundamental questions. They will also prompt you to switch to the appropriate graphic, whether that be a 30-minute display with tick-by-tick data or a weekly chart with annualized data.
5. Have an exit strategy
With an exit strategy in place, you can confidently set your stop loss and take profit levels, regardless of market conditions. You're prepared for any plan, positive, negative, or neutral. Leave no doorways or exits open to chance. Before you make a trade, you should formulate a strategy for when to get out.
6. Tighten position size
You need to account for more volatility and unpredictability in your plan before you even get started. Inexperienced traders and investors often fail to do this. If that's the case, you'll need to adapt your tactics and prepare for more price swings and volatility. Long-term market trends that emerged a year ago are becoming less relevant today.
7. Zoom out for historical context
Extend the view of your charts. Then expand your zoom level. We will now expand our focus even further. Mark the most recent price action (a candle, a line, or a price itself) in a circle to help you keep track of where prices currently stand in relation to their historical range. One piece of advice is to "zoom out" whenever possible. Avoid living in the here and now by focusing on only the current day or week, and instead read up on the full pricing history. Research the history to better understand the present.
8. Cash is a position
Do you wish to enter a trade using a dollar cost average? Interested in making additional purchases? Do you wish to engage in a greater amount of trade? Such an endeavor necessitates financial resources. The ability to dip in and out of the volatility anytime you like is reassuring. Money is power and secures this.
9. Avoid panic, FUD, and FOMO
It's common for people to make some of the gravest mental blunders while their emotions are high. Fear, uncertainty, and doom are abbreviated as "FUD." The acronym "FOMO" refers to the dread of missing out. Both of these feelings are frequent during market crashes. Everyone is simultaneously convinced that the end is nigh and that every slight improvement signals the beginning of the next bull run. Do not give in to your feelings.
10. Take a break
Taking a break can be quite beneficial. Log off, put down the electronics, and go for a walk or jog outside. When you feel prepared, return to the trading markets. As a result, your mind may finally relax as well.
If you're new to the markets, we hope you find this piece entertaining and informative.
Thanks for reading. Write a comment below if you have any questions. Your comment will encourage me to collect more information.