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Survive A Bear Market: Introduction to Risk Management in Trading

Risk Management in Trading - Official Olymp Trade Blog

Inflation and global uncertainty are wreaking havoc on the stock market and trading in general. It's high time to put risk management into trading the best we can. Here's why and how.

Contents:

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Bear Market and Risk Management in Trading

The bear is here, shaking up the stock market. As of June 16th, 2022, the US Federal Reserve officially broke the record of raising interest rates threefold as expected by our Olymp Trade analysts – who have taught us a lot about risk management in trading all this time. As recently observed, the  S&P 500 has plunged into a bear market with a 20% decline in its market capitalization since January 2022.

S&P 500 Chart – Olymp Trade – 08.07.2022
Fig. 1. S&P 500 has been declining since the first months of 2022

Central banks decided to raise key interest rates to lower inflation. The stock market has reacted with a consistent decline as a higher interest rate means a higher cost of borrowing for businesses. This also means slow growth and probably a recession. In such a situation, risk management in trading may help survive in a bear market.

Why do our investments have to be the victim of a bear market? Do not fear. With risk management, you will be able to face these days positively and Olymp Trade is here to help.

Why Effective Risk Management is a Must

Given that the bear market has been the hype lately, there may be significant amounts of investments lost. Life changes in unpredictable ways. Sometimes, it's beyond our control. The skill of risk management trading is important for all investors and here are some ways to apply it.

Securing our funds while seeking any opportunity to make even a small profit is possible. Bear markets will not be there forever, but we never know when they will bounce back. Successful risk management in trading requires relaxing and leaves overthinking.

If you're an Olymp Trader and investing in Stocks as I do, you may find more red than green in your portfolio. Should we sell those units to stop further losses, or should we wait for the bear to get tired and walk away? Based on the best risk management in trading practices, our decision will depend on the losses we can afford.

The good news is that Olymp Trade provides a long list of ready-to-use analytical tools anytime you need to examine the market's current dynamics. Check your chart, pick a few indicators, set the time frame, see what's going on and what could happen shortly, and make up your mind.

With risk management trading, there's always an opportunity to profit even if the market seems unfriendly.

In addition to Stocks mode, think about working with other trading modes Olymp Trade offers – Fixed Time Trades and Forex. Some popular stocks are available in both trading modes that allow traders to see the return on their investment in a relatively short time. Yet, no choice is risk-free; risk management in trading is a must regardless of your preferences.

Specific recommendations regarding types of risk management and how to apply them are outlined below. Whether you are committed to Stocks, Fixed Time Trades, or Forex in Olymp Trade, risk management trading is necessary to protect yourself in a possibly losing battle.

Types of Risk Management and How to Use them to Secure Your Trades

Being a successful trader does not mean you always win and never lose. The key to surviving amid market uncertainty is risk management in trading, and there are a few common types of risk management I would suggest. Cheer up; these are the most straightforward and beginners friendly.

✅ Diversifying your portfolio

Portfolio diversification means we avoid allocating the entire investment funds only to a particular company or a business sector. We don’t put all eggs in one basket to minimize risk, and this type of risk management is recommended if you decide to keep up with Stocks in Olymp Trade.

For example, you invested in  Johnson & Johnson’s units on Olymp Trade Stocks, and its price direction barely increased the following day. The first thing not to panic is to take a deep breath and look for other units that seem to show better price movement. If you want to put this type of risk management into practice, make Olymp Trade technical analysis as your assistant to analyze the market.

A decline in a specific sector may not arise in other industries. The bottom line of this type of risk management in trading is: that when your investment in a company does not appear fruitful, consider looking another way. At the time of the writing, tech firms seem to be the hardest hit by Fed rate hikes, while oil and gas companies are showing the opposite. For how long? We’ll see.

Fig 2. Chevron is one of the stock market champions in recent months

✅ Stop Loss

An alternative risk management type in trading is also popular among Forex traders. With Olymp Trade, you can use Forex mode to invest in stocks, precisely what you need. Suppose a trader believes that  Alibaba’s price will rise and decides to open an FX buy position. Anything could happen in the stocks market; therefore, he fixes the Stop Loss at some percent below his opening price.

Stop loss set on the example of Alibaba stocks trading on the Olymp Trade Forex platform – Olymp Trade – 08.07.2022
Fig 4. Never leave Stop Loss, regardless of your deposit balance

On the Olymp Trade platform, you won’t have to watch the chart all day, waiting to see where the price moves. The Stop Loss function automatically closes your position once the price falls within the settings.

It is such a convenient type of risk management – traders can leave the trade for a while to search for more profitable assets to invest.

✅ Start Small

The economy is changing rapidly, and the market is paying no attention. Investing in small amounts is a simple type of risk management in trading while waiting for things to turn around. However, starting small also means small outcomes, but you won’t want to lose it all when the market is against you.

In Stocks, you can start with a fractional unit. Buying as small as 0.01 parts of a unit is safer for your funds; you can raise the stake later. The unit is initially offered to traders who want to invest in big names, such as  Google. Bearish markets may look frightening. For this reason, a fractional unit can be accounted for as temporary risk management in trading until the market volatility seems to get better.

Conclusion

Making your money works for you is not empty marketing jargon. It might be a dream, but what if that dream comes true? Olymp Trade Stocks, Forex, and Fixed Time Trades open the door to a great deal of opportunities to profit for traders across the globe. And it does not leave you alone in the jungle without any knowledge, managing specific risk management in trading since this business requires some distinctive handiness.

Take the time to read and develop the simple risk management trading explained above. Ideally, you may come up with another version that fits your trading style. We always welcome anyone interested in sharing with us through Olymp Trade's official social media channels – and we will be pleased if you do. But, first, get a quick overview of Olymp Trade’s assets list here to learn more about their profit and risk potential.

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Risk warning: The contents of this article do not constitute investment advice, and you bear sole responsibility for your trading activity and/or trading results.