The entire world is going through the COVID-19 situation and it’s been an extremely tough time for all the investors and traders. At the time of writing this article Coronavirus has claimed over 14.5K lives with about 326K cases worldwide. See the latest stats here.
The global stock market has taken a deep plunge which in turn has wiped out billions of dollars from the economy. The major indices have fallen somewhere in between 25% to 50% in the last 1 month.
This situation is not going to end very soon. As always, the market is going to find a sweet spot where there is a balance between buyers and sellers. And it’s very hard to predict when that is going to happen.
What should be your strategy for the next few months if you are an active trader or investor?
We have come up with a 5-pointer strategy that you can follow to survive this financial crisis:
- Avoid intraday trading: Though day trading may look lucrative due to the highly volatile market, just stay away from it. You’ll never know when your capital gets wiped due to one bad news or rumor. And if you use margin amount for day trading, you may be at very high risk.
- Keep invested in bluechip large-cap stocks: If you already have a portfolio of bluechip large-cap stocks, just stay invested. You can also increase the holdings with every 5% correction on these stocks. History is the witness that bluechip stocks have survived every big market correction.
- Don’t stop your SIPs: SIPs (systematic investment plans) are the best for dollar-cost averaging during volatile markets. So, if you already have monthly SIPs on mutual funds or stocks, never think of stopping it. They are surely gonna reap benefits in the long term.
- F&O strategy: Stay away from future trades on high span margins. If you can’t resist trading, look out for options. Buying out of the money options may be profitable in the short term with limited loss. However, protect your capital first before making any trade decisions.
- Invest in Learning: Last but not the least, the best thing to do right now is to invest in learning. Knowledge is the only asset that is not going to wipe out. Learn technical analysis, chart reading and algorithmic trading. When things are back to normal, you’ll have an edge over the masses.
Do’s and Don’ts during Coronavirus Crisis
Below are some of the Do’s and Don’ts that would help you protect your capital in this situation:
Do’s
- Be patient and optimistic. Things would be back to normal soon.
- Balance your portfolio. Square off all the worst-performing stocks and increase your holdings in large-cap.
- Diversify in other instruments like Gold and Bonds.
- Keep learning and test your knowledge through paper trading instead of live trading.
Don’ts
- Don’t panic and take any hasty decisions while trading.
- Don’t take any new positions with high margins.
- Don’t wait for market bottom, you’ll never know when that is going to happen.
- Don’t engage in short selling (both equity and options) as the loss may be unlimited.
- Don’t watch the market movement continuously as it may trigger panic and anxiety.
Trading Tuitions family wishes you the best to survive this crisis. We urge you to follow the regulations from your local government bodies and take necessary measures of social distancing.
In case, you have any questions or if you need any investment advice, feel free to send a note to support@tradingtuitions.com