If you want to earn money trading the markets in the long run, you must understand how to deal with bear markets and trading during recessions. Remember that a bear market occurs when a market is down 20% from its highest point. From there, it can either keep going down or bounce back.
Don’t panic when you start losing money with your spot positions. Be smart and try to take advantage of the situation – you could use CFD trading to hedge your investment portfolio, for instance, and try to capitalise on bearish price movements.
1# Don’t panic – Stick to your investment plan and remember your financial objectives
Your trading plan is in place for exactly these types of conditions. Refer back to it often to stay level-headed and unemotional.
The stock market has a long history of taking dives and then recovering, but some younger investors won’t have much personal experience with these events. Learn from the past, take a breath, and make smart choices based on your long term goals.
2# Bet on recession-resistant industries
Some investments are more resistant to recession times than others, and then there are others that seem to thrive. Consumer products are one such example.
Regardless of economic conditions, people still need to eat and drink, wear clothes, heat or cool their homes, communicate, and use cleaning products, for example.
Do your research and see what you can use in your portfolio to make it more diverse in down times.
3# Think about adding Gold to your portfolio
Gold is often viewed as a relatively safe investment during economic uncertainty.
There are loads of ways to trade it (CFDs, ETFs, Options, and Futures for example), it tends to hold its value, it can’t deteriorate, it doesn’t need maintenance, and it’s highly liquid.
It won’t provide returns in the form of yields though, so think of it as just one part of diversifying your holdings.
4# Take advantage of discount prices to invest over the long-run
The market will recover as it always does, and it’s important to try and look beyond current conditions and think about what large stocks and big international brands will likely do when market sentiment changes.
Make technical and/or fundamental analysis a part of your strategy and look at the long-term trends to profit from improving market conditions.
Keeping some cash in your portfolio could also be helpful to capitalize on opportunities in a bear market.
Bottom line
These are just a few tips to take into consideration in order to make the most of a recession when trading the markets, but there are many others you can follow.
In any case, always remember to only invest money you can afford to lose, since investing money you don’t have can create additional psychological pressure when markets go against you.
It’s also important to always keep your investment horizon in mind, and that you have a strategy to stick to, so don’t allow your fears and emotions to influence your decision-making process.