The 2020 market crash affects multiples industries. Many investors lost sight of the big picture and neglected to fight the dip in the rollercoaster. It’s essential to watch for the various nuances that indicate sectors decline.
Trading a basket is much easier to get a feel for the market. You can find out which ones are the good and bad ones. If one of the big names in the industry drops, other companies in the sector will likely fall. Trading small-cap companies is a good method towards growing your investment both long and short (but mostly on the short side). Watch the risk, rewards, and volatility of the stock. Small-cap companies have the highest growth potential. In the greatest economic dips, you must do your best to maximize your opportunities. Keep an Emergency Fund. Recessions and economic busts are inevitable. Watch for them.
If you have the foresight, short industry that will be affected by the recession. During an economic bust most stocks are on discount. If you have faith in a reliable company then that is your chance to buy. The worst thing to do is sell your stocks when the entire market dips. Historically it takes 3-5 years for the market to recover. Historically, it takes 3-5 years for the market to recover. In COVID, it only took a year. When the rollercoaster dives, don’t let go. For those day traders out there, try holding overnight if an entire sector is weak all day. A lot of moves happen overnight. Recognize the pattern and put the money where the pattern is at.
Scaling Risk Per Trade
How do you know how much money you should be risking on the day?
A trader should earn the right to size up. It’s a subjective number and depends on how much you can handle. A good metric to judge is using your historical performance depending on how many trades you do in a day or a week. Gradually grow your trading risk the more success you see in your strategy. Be confident with your trading strategy. If you aren’t, revaluate your edge. Be consistent within the boundaries you are comfortable with.
Evaluate your Set-Up
Learning from your mistakes makes you a better trader. Follow your plan. If you get overly confident and things start to fall out of place, reassess and bounce back with the formula that has worked for you. Stay open-minded and look for new setups. Investing is a mental game. Patience is key. Calmly evaluate your trades before playing them out to capture the larger picture. One effective setup is to short-term hold and intraday trade small-cap companies. Because they are subject to volatility it is essential to keep a watchful eye.
One of the most effective setups is investing in mid-cap and large-cap companies for a long-term hold. Scan stocks that have over 6 months for strong performance and watch how they break out. The breakout is your opportunity.
Watch for the nuances in swing trading. Don’t buy stocks that are diluted like the small-cap companies. Someone is always selling them at the market offer. When swing trading, trade real companies. The top dogs will bark the loudest.
Recycling shares on an Intraday trade
It’s all about the trend and the volume. Hold on to the trend. If you short a stock, don’t short on a green candle, only on a red. The same can be said about the former. Patterns tend to repeat themselves.