Will the stock market crash again? [Video]
|How I’m Preparing For The Next Market Crash
If you’ve ever read Douglas Adam’s Hitchhiker’s Guide To The Galaxy, you’re familiar with the term “DON’T PANIC!”
After the recent drop in the market, you may have been asking yourself, “what am I going to do?” or “what if it happens again?”
What should you do when and if the stock market crashes… again?
There’s one incredibly important thing to remember:
Always follow your plan!
What am I doing now to prepare for the next crash?
Let’s talk about what happened this week in my 20k account.
In this account, I’m using my PowerX Strategy to find my trades.
Using my trading plan, I take the trades that the PowerX software recommends.
Out of those trade recommendations, I ONLY take the trades that fit my plan.
As of today, the PowerX Software recommended 70 trades total. 31 of these trades matched my plan and 22 had order fills, or were executed.
After Thursday’s (June 11th) huge drop in the market, I had to exit a LOT of those positions.
Out of all those trades, only 5 were profitable… but I still have 4 positions on.
Wait a minute… this means I only had a 28% winning rate, right!?
Or after the crash, I lost 72% of my trades?! That sounds pretty bad.
Don’t traders always want to have high winning rates?
Yes! But even when we can’t win 80% or 90% of the time, we still practice trade management.
What is trade management?
We can limit the downside potential to any losing trade by sticking to our trading plan. What does this mean exactly?
In this particular instance, I am referencing your entry and exit point.
Before any trade is taken, you should have an entry and exit point already defined. Meaning you know exactly when to buy and sell the stock or option.
If the trade goes against you, you always stick to your plan and use your exit strategy.
Too often I see traders that hold onto losing trades way longer than they should, just hoping things will turn around… and let me tell you, they rarely do.
That’s why it’s important to STICK TO YOUR PLAN!
How did I do after Thursday’s drop?
So… after I closed out the losing trades totaling $2,365, and the winning trades of $2,273, I am only down a total of $362 dollars.
This means the average value of my winning trades is more than DOUBLEthe value of my losing trades…
So after the huge drop in the market, I managed the losing trades by sticking to my trading plan. What’s the good news?
I still have 4 remaining trades left… and all I need is one of them to be profitable!
How to manage your emotions during a losing week
You may have seen the awesome coffee cup that I use during my “Coffee With Markus” YouTube Series? I use this mug every day.
It says, “Trade what you SEE, not what you THINK.” It reminds me every day to be objective when trading the markets.
It reminds me to trade what I see, not what I feel.
It’s important after a week of losses to remember this: You MUST prevent your emotions from getting the best of you.
It’s perfectly fine to have emotions. Scream. Yell at your computer! Let your dog know how frustrated you are… just don’t let your emotions influence your trading.
Many traders will take their frustrations from a losing trade and chase after the market. This is called revenge trading, and it’s a spectacular way to lose even more money.
Never let your emotions get the best of you.
What’s the secret to winning during a stock market crash?
Keeping your losses smaller than your wins and sticking to your trading plan. It’s really that simple.
So if the news (that has been nothing but BAD lately) has you asking, “When Is the next crash coming?!”
Or…”Is the next crash already here?”
I have news for you! It does NOT matter..
I do not care what the markets are doing!
I only trade what I see, not what I think.
Follow your plan and remember… hope is not a strategy.
So, if the markets turn and your trade is no longer profitable, stick to your trading plan and get out.
This will always keep your losses smaller than your wins. This is really the key to consistency and success in trading, no matter the market conditions.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.