When planning for a global economic crisis there are a number of things to keep in mind. Economic downturns happen, economies like assets are subject to corrections, and when enough countries experience a downturn at the same time it can be considered a global crisis.
Many recent financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults.
Basic crisis preparedness lies in your financial planning. Ensure your portfolio is recession ready by lessening the stocks you own as to not lose too much when the bottom falls out, consider switching to bonds or dividend stocks. Bulk up your emergency savings, analyze your spending to see where cutbacks can be made now or in the future, and reduce debt starting with your high-interest debt.
However, this article is not about merely surviving an economic crisis, but thriving in one. With trade wars, Brexit, and central banks around the world dropping interest rates it can be argued signs of a global recession have appeared.
Riding the Trend
Investor sentiment is fickle and that is no truer than during a global crisis. True, in the midst of a crisis is not the best time to hold on to stocks. However, it is a great time to trade forex and options. The overwhelming trend of the market is down, and through both types of trading you can take advantage of this trend.
Following your trading strategy will allow you to make the crisis work for you. There were hedge funds in the U.S. and around the world that made a fortune during the 2008 economic crisis. They trusted their strategies, and reaped the rewards.
Take the S&P 500, from the beginning of 2008 until March of 2019 the overall trend was down. Over the year, the index lost nearly half of its value. Looking at the one week chart below, you can see the long term trend displayed. Though there were plateaus, the price continued to drop over the course of the year.
Technical and fundamental analysis are both extremely important to trading, but they can be more so in a crisis. Monitor the Economic Calendar as Federal government reports, company earnings, and national bank decisions impact assets, but during a downturn, bad news can be profitable news. Trade the drop.
As stocks bottom out, pick them up for cheap. It seems simple and in principle it is. The hard part is knowing when the bottom has been hit. Buying low is a process.
Investors purchase stocks they believe will surpass their former value in tranches. Traders buy assets in waves, the reason being, they do not know when the price has hit its lowest point. At periodic intervals acquire assets you trust will recoup their value and grow beyond it.
Profit from Increased Volatility
In times of financial crisis market volatility is inevitable. Money still flows through a rocky market. To truly capitalize on the turbulent times while trading forex, be sure to use a stop loss. Investors use this tool to minimize their potential losses.
Not all assets will be affected equally by the financial crisis. Do the research, make educated decisions, and you will be able to make the spontaneity of the market benefit you in both the long and short term.
Olymp Trade allows traders to profit on cryptocurrencies and their fluctuations. As these currencies are not tethered to the same factors as fiat currencies, stocks, or commodities they are slightly more unpredictable. That being said investors look for assets that will maintain and increase in value, as traditional currencies ungulate cryptocurrencies could soar.
There is money to be made in an economic crisis. Financial institutions, currencies, and commodities will see a decrease in value, but when properly prepared investors can make large amounts of money. Do not fear the next global financial crisis, be ready, practice and perfect different strategies in advance.