#TuesdayTip - Dealing with Market crashes
What is a stock market crash?
There are a few select stocks that are thought to represent a companies from every industry of India. This is what we call an Index.
There are two major ones that represent India - The Nifty (made of 50 stocks) and the Sensex (made of 30 stocks).
If the prices of these fall too much, it generally means that majority of the stocks in India are falling.
When the fall is very large it is called a stock market crash.
The fall in Indian stocks began the day Mr. Arun Jaitley introduced the Budget 2018. Then the US markets crashed as well because of a large number of reasons.
There are a few big news events such as budget announcements, RBI ,meetings, election results etc. that have a huge impact on the stock markets.
When there are big news events coming up many traders, including me, prefer to not do anything and just watch.
Why?
On such days the markets are usually very unpredictable. One minute they are up and the next they are crashing down. They have no predictable movements.
As swing traders, we need a clear direction. So on such days it's best to stay away from the stock market and close your positions.
Have a cup of coffee, watch a movie, read the news. Do anything you want, just don't trade. Sit back, watch the drama on the stock market unfold.
I made a few losses too. But I am not that disturbed and if you have been trading how I have explained, you shouldn't be too worried either.
We use a target profit and a predetermined maximum loss (Read here). I have discussed this before and will repeat it again. Always use targets.
Since I have targets, I am not tempted to wait and hold on to losses and watch them become big. I am not greedy and take my 4%-5% profits when they come.
And I recommend you start doing the same. My losses in the crash of the last two days have been limited to 1.5%
If you have traded carefully and abided by the rules of stop loss, your loses should be limited too.
Thank you so much for reading. I plan to explain stop losses in more detail in the next post (Read here). It's very important and I recommend you do read it.
So stay tuned!
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