Trading World Events such as Coronavirus
Coronavirus fears trigger excellent trading opportunities.
Panic in global markets began in February 2020. The panic due to the spread of the coronavirus around the world has already led to consequences that a few months ago, no one could have thought of. The financial market is no exception. The market is really wrestling with two things now. The first is that the coronavirus is obviously going to have an impact on both global GDP and corporate earnings.
The market is also wrestling with how big that impact is going to be versus the fact that there is likely going to be added liquidity and lower rates from the global Central Banks. Coronavirus is a clear example of how force majeure factors can turn the market in one direction or another. It is because of such drivers that most analysts when making their pricing forecast, are sure to add the word “if…”.
During this time, during these moments of fear and panic, if you are an investor who is prepared mentally, emotionally, and financially, then right now can actually be one of the greatest opportunities of your lifetime.
As Warren Buffett said, “you want to be greedy when people are fearful, and you want to be fearful when people are greedy.” When there is a lot of fear, there are many great opportunities. Sir John Templeton, one of the greatest investors of all time, also said that you could make the most amount of wealth under maximum pessimism when people are the most scared and the most fearful.
A very recent example demonstrates how American traders made over $51 billion in seven trading days, from February 24 to March 3, by short selling stocks. Tesla stocks have become the most popular stocks among investors who bet on their fall and earned about $1.1 billion. The volume of bets in this segment amounted to $848 billion. Although many countries now banned short selling, there are other trading opportunities you can take advantage of.
Stock Market: How to take advantage of Coronavirus
Before we get into trading strategies during this tough period, we would like to provide general tips that will help you get through this time and make sure that your trading account does not take a big hit.
Taking on Less Risk
Remember, your goal during this period is not to make big money, but to reduce the overall risk, so you can keep on trading after everything is over. First of all, stock market traders are risk managers:
- Reduce position size
- Reduce overnight risk
- No weekend holding
- Protect mental capital
- Stay away from social media
- Do not make decisions out of fear
- Join groups with experienced traders
The second tip is never to buy a falling knife. Trading professionals do not try to buy the dip. Even if you get late, the upside may be huge because the stock market is moving now significantly, and you will have plenty of opportunities to make a profit. During this time, you also need to account for the volatility and make sure that your stops are not too tight and that you look for the spreads you are trading.
If you see that the market is very far away from the moving average, then usually it is best to stay out of the market. Also, if you see that the market and the price are constantly trying to break the moving average and trading is very messy around the moving average, then it is usually time to stay away from such a market.
Look at what is going up in a down market
In the market overview, look at what stocks have in common and look for at stocks and indices that go higher when the market goes lower. For example, short and ultrashort stocks will always go up when the market is down. Coronavirus related stocks might also be up on the day the market drops. Volatility indices will also go up with a downward market trend. Other stocks that will go up will be gold because gold tends to go higher during potential crises.
It is hard to exploit volatility if you are just trading stocks. However, the way you can exploit volatility is trading options. So, if volatility goes higher during down markets, that means most options will be expensive. To be on the right side of probability, consider selling options premium (with protection, such as credit spreads) instead of buying.
The crisis of 2008 was indicative in terms of analysis of the stability and reliability of many companies, the stock market. At that time, many organizations either froze their assets or completely went bankrupt. Even during the crisis, Forex has demonstrated its stable operation. This market is one of the few that continues to work and bring a steady income.
Does it make sense to trade on Forex during a crisis, such as a coronavirus? The answer is yes because it is during the crisis that there is a chance of acquiring valuable assets for nothing. After each crisis, there is a period of stabilization of the situation during which the acquired assets will increase in value several times, and this is a direct profit.
The main commodity on Forex is the currency (money), which will never cease to be in demand. This is the main feature of the market. When working on Forex, investors insure themselves against crises and even earn money on them because money will always be the most valuable asset.
The Forex market is the best investment opportunity because the market has several advantages. It is during a crisis that market opportunities become virtually unlimited. As soon as the value of currencies begins to fluctuate, there is a wonderful opportunity to make good money on this.
A crisis for Forex is a great opportunity to increase your capital, so it is not profitable to stop working at Forex with the onset of the crisis. With a minimum capital, you can make a fortune. The main thing is to monitor the dynamics, buy assets, and sell them at the right time. Also, remember the first point, and do not put all your eggs in one basket.
Coronavirus Trading Strategies
When trying to form a trading strategy during coronavirus, this of this event as any world crisis event or any event that would shock the market.
1.Pretend nothing is happening and keep on trading
If you have a financial death wish or you are just plain unwise, then you can follow this particular strategy.
2.Trade very selectively with good risk control
Your other option is to play very selectively, paying particular attention to risk management. To use this strategy, you need to be extremely experienced. It would mainly apply to manual trading because robots are built on technical analysis, and what is currently happening in the market is not technical and is driven by fear and other factors.
3.Do not trade
This is a strategy that most traders choose to go for now. You should wait before there is an element of settling down before you start trading again. There is just too much going on, and the risk has multiplied in the stock market.
4.Do not trade, but develop your trading skills during this period
If you are not going to trade, why not develop your trading skills at that time? You do not have to do anything and can actually use this time to become a much better trader.