Not everyone is Warren Buffett. Then again, Warren Buffett himself wasn’t the Warren Buffett we know today when he started out. It was through experience and deep insight that he started making gains where others saw only losses. Now, however, we have online stock trading, advanced broker dealers, countless market experts providing insights and smart technologies - things that Buffett couldn't even dream of when he started out.
There is something that investors and analysts always look out for in the stock market - is a crash going to happen? When the market keeps rising and rising, fear grips investors as to whether a crash is around the corner, after the growth reaches its peak. Constant turbulence and volatility also spark fears of a crash. It is important to be prepared for a crash anytime. Experts suggest some steps that every investor needs to take into consideration.
Investing Tips
Being Prepared for a Potential Crash
Investing in Healthy Stocks
The first step is investing in healthy stocks. The thing about stocks representing healthy underlying companies is that these companies have strong fundamentals. They can survive highly volatile periods. However, weaker companies could be unprepared to deal with volatility. Stronger companies, even if they suffer temporary blips during market volatility, can recover from the blips and be profitable in the long term. It is therefore important to carry out as much research as possible before selecting the stock to invest in. The opinions of experts could be helpful here, but it is also important for you to do your research.
Proper Investment Allocation
Next, you need to ensure that your investments are properly allocated based on your age, life goals, and financial situation. Everything depends on what stage of life you are in. If you are nearing retirement, you don’t need to look for astronomic gains. What you need are stable investments, stocks that have long-term potential and represent companies with strong fundamentals, bonds and other investment vehicles. That way, a market crash wouldn’t affect you too much.
On the other hand, if you are young and just embarking on a career, you can afford to be more adventurous in your investments and go for high growth stocks. Still, you must ascertain how much risk you are willing to take, and ensure whether you are prepared for it before you make the leap. Investing experts usually suggest a formula to work out your portfolio allocation:
110 minus your age = the percentage you should set apart purely for stocks from your portfolio
The rest could be bonds and other investment options.
Having Financial Backup
You also need to have an emergency fund in place when you are investing, so that you don’t have to suddenly pull out of your investments when a financial crisis arises in your life. Sudden incidents such as a job loss could force you to sell stocks even when the market is down and stock prices are low. That could result in a significant loss. It is advised to have savings, worth six months at least, tucked up in an emergency fund to use when you have an emergency. That will ensure you don’t touch your investments.
Day Trading Tips
For day traders though, it is a different ball game altogether. The timeline of each trade is just a single trading session that happens in the regular trading hours of a day. Everything is quicker in day trading, because you have to buy a stock and sell it before the trading session ends that day. You also need to make a profit in the process.
Stock Research
While the long-term aspect is not in consideration for day trading, day traders need to figure out which stocks have the potential to rise through the day. Here too, you need a plan because there is significant risk involved. If the stock you pick does not grow the way you thought it would during the day, you would encounter significant loss. That’s why you need to do as much research as possible with the stocks out there before you start trading.
Backup Funds
Again, you need to find a way to manage the risk. You need to have backup funds so that your life isn’t financially compromised if you lose in day trading.
Setting Entry and Exit Points
You must also set entry and exit points. In other words, as you research stocks, you must decide that you will buy a particular stock when it gets down to a certain price point and then sell it when it gets to the particular point, not waiting for the stock to keep going up because you never know if the stock may fall after that and you lose even what you have gained. This applies even if the stock keeps going down. You can’t keep sitting back and watching your stock going down beyond a certain point in the hope that it will grow again. You will have to stop at some point to minimize your loss. That’s called an exit point. You need to set the exit point even before you buy a stock and stick to it. The entry point is the point at which you decide to buy a stock.
Researching Candlestick Patterns and Charts
It is important to understand candlestick patterns and study charts to study stock movement. This ensures that you are always well informed about the movement of the stocks you plan to purchase.
Advanced direct access trading platforms can help you make informed trading decisions, because they give you unhindered access to the markets. Don’t get disheartened with a few losses. You can eventually pick up and start making gains. If you have a risk management plan in place, nothing can hinder you from moving forward.
Advanced broker dealers offer features such as high day trading leverage to help you maximize your gains and opportunities. They also offer newbies demo trading, so you can learn the nuances of trading without real money being involved. Once you’ve got the hang of it, you can move on to real trading with an advanced online brokerage.