The Coronavirus Crash
We uploaded a video to our Youtube channel and Instagram page to help our students and followers maneuver a potential crash caused by the spread of COVID-19 and other factors. Here's a summary...
A Recession is Happening
(and it's WORSE than 2007/2008)
Correction vs. Crash
A correction is anything between 10% and 20% of a drop. Financial analysts consider a correction to be anything less than 10% of a drop and anything more than 1% to 3% is considered a dip. A decline more than 20% is considered a crash and a recession is when the GDP decreases in two consecutive quarters.
At the time of filming the video, we were still in very a strong market. The market was still in a correction at just 14% down. Now the market is down over 30%! THAT is a recession...
Will we see a bear market?
We must be careful, since the news says that the market is about to fall into a bear market. It is very possible, but for the moment it is still within the margins of a quick recession. It is very important that we are careful in managing our finances, whether there is a bear market or not - we can be fine both ways.
The effects of COVID-19 on the current economy with panic buying and mass fear could lead to companies reporting losses in not only Q1 2020 but also Q2. These results would define a Bear Market for the United States economy.
How to make money in a volatile, red market...
The key to maximizing your profits is not to buy at the bottom and sell at the top, that simply is not possible.
What you can do is:
1. Time Diversification (4:08)
At times like these, it is important to diversify your investments, most importantly - OVER TIME. One should never put all their eggs in one basket. That includes one moment in time. You will never predict the exact bottom to buy in this recession. Instead, you should start using those cash reserves you saved (if you are an Inlight student, you should have some cash reserves for when we predicted this would happen) and start buying back into the market at regular intervals in time with the same amount. Whether as a percentage of your income or a standard investment size, you should keep your size and timing standardized as to avoid any effects mistiming could have on your holdings.
As long as you invest regular lots of money at regular intervals in time, your account will smooth out like the overall market has over the past decades. If you throw all of your money it at once, however, your account could be exposed to a large dip that could have been avoided.
2. Don't panic (5:31)
If you are a long-term investor or a day trader, you will be fine. Even if the market falls, you will be fine. Do not panic as there will always be opportunities in the market. As long as you are diversifying your investments over various industries and moments in time, your portfolio will even out over long periods of time.
If you are short-term trading, times like these often lead to heightened emotions. As we all know, emotions are the enemy of a day trader. Every morning, as you set up your desk and build a watchlist, remind yourself that you and your finances will be okay through these volatile times as long as you take necessary precautions and reduce risks where you can.
3. Learn to Sit on your hands (7:57)
You have three options as a trader: Buy, Sell and Do nothing. Many people always forget the last one. If you don't see an A+ trade opportunity, you can simply not take a trade. It is actually okay to not generate profits every second of every minute of every hour of every day. Tt is okay to do nothing and wait for the best opportunity in the market. You should NEVER force a trade.
The ways you can profit when a stock goes down...
- Short shares
- Buy a put option
- Sell a call option
- Sit on your hands and buy in later
If you have questions or need help trading, do not hesitate to write me. Us mentors at Inlight Trading are here to help you in tough times like these. Whether it is with a consultation with a mentor or a full mentorship, we have what you need to succeed in this volatile market. We do not like to see people going through bad times so we want to help you.
Do you learn better from audio and video? We made a Youtube video explaining these ideas in more detail...Watch the FULL VIDEO to learn MORE!