Synopsis: Fleeing markets during recessions and pandemics is not the best decision for traders. There are effective trading strategies that are worth exploring.
Trading in financial markets does not stop even during a pandemic or recession. There may be times when a temporary suspension is implemented as the markets suffer an extraordinary series of losses. However, this does not mean that the capital markets stop. With the right trading strategies, traders can still make a profit.
Avoid dumping all stocks, but reassess stocks.
One investment tip from recession experts is to do nothing. Consequently, it is better to be passive than to actively try to overcome adverse market forces. A Morningstar study reveals that less than half of US equity funds outlived and outperformed the average passive investor in 2018.
“The bottom line is that active management is a really tough game and finding good active managers is even more difficult,” says Ben Johnson, Global Director of Passive Strategies Research at MorningStar.
However, there are cases where you need to reduce your exposure to certain stocks that are unlikely to survive the recession. A revaluation of the holdings would be in order, but dumping should only be done when there is certainty that the companies represented by the shares are going to fall.
Stick with proven recession-resistant assets
While there are no assets that guarantee consistently positive investment returns, some are known to do better during downturns. Stocks in utilities companies and stocks in companies involved in consumer staples are some of the most recommended options. No matter what happens to the global economy, people will always need public services and consumer goods. As such, they are unlikely to fail even under a severe economic slowdown.
It’s also a good idea to consider dividend stocks, which have historically been considered viable sources of income when there are recessions. A report from Capital Group suggests having a portfolio with a high percentage of dividend-paying stocks, companies with credit ratings at the BBB level or higher, and low-risk fund metrics.
Also, it is not a bad idea to engage in currency trading. As one report says, currency trading is the recession-proof business of the 21st century. “FOREX, being the largest liquid financial market in the world, ensures that there are always buyers and sellers for any type of currency because the world economy depends on the movement of goods from one country to another.”
However, currency trading does not always guarantee success. Traders must find the right strategies for their trade. A study on currency strategies by Regal Core Markets (RCM) says that “there are countless different strategies, each with its own strengths and weaknesses.” It is up to the trader to determine the correct method to use by determining which one allows him to read price movements more meaningfully.
The forex market is considerably larger than the stock market, with its daily trading volume dwarfing that of all other markets combined. It already surpassed the $ 6.6 trillion mark at the end of 2019. That is why Regal Core Markets wants to help provide this greater variety of opportunities through its trading platform, which is built with advanced technology implementations and operational infrastructure to support traders. merchants.
Regal Core Markets is leveraging the decentralized nature of the Forex market as well as its 24/5 operation to offer innovative ways to trade and profit even with a pandemic and recession still ongoing. Their platform supports multiple tradable assets and provides multiple ways to generate profit. Again, the forex market is generally considered recession-proof, so it cannot be unintuitive to focus on it when economic conditions are unfavorable.
Extend the investment time horizon
An article by Nicolas Barberis recommends investing for the long term because markets are predictable for longer periods. “We found that even after incorporating parameter uncertainty, there is enough predictability in returns to cause investors to allocate substantially more to equities, the longer their horizon,” the paper writes.
This idea is practically never questioned by investment experts. However, it is often ignored or neglected because most investors focus on short-term results. Traders can make better decisions when examining trends with a longer time line.
It is not unusual for investors to avoid markets when conditions turn tumultuous. However, seasoned investors know not to ditch all of their stocks, ignoring long-established safe assets and setting short-term goals. Markets tend to underperform when a recession hits. However, this poor performance is rarely a reflection of medium and long-term results.