10 Essential Tips for Navigating a Market Crash

This week has been anything but pleasant for investors. The volatility of the market as of late is enough to make any stomach churn.

SentimenTrader reported this morning, “For only the sixth time in more than 100 years, markets have swung by more than 4% for four straight days. According to Google Trends, news stories referencing “stocks” and “nausea” are nearing an all-time high.”

It is during these times that investment portfolios can be ruined. Not always by the market either, but by those trading. Remember these ten tips for navigating the current market turbulence or any market crash in the future:

1. Avoid panic selling - As hard as it may be, taking a disciplined approach to navigating any crash is better than simply clicking the sell button. This can mean selling smaller portions over a few weeks and averaging out over time (pyramiding), or waiting until a strong rebound rally (most often a suckers rally) and selling into strength.

2. Do not buy any new positions - More on this in #5, but avoiding new investments is a wise choice until the market regains its footing. Purchases should always come from a disciplined strategy with a proper profit vs loss ratio. With a crash taking place, going against the overall market trend should be your last idea.

3. Get off margin - Margin calls are any investor's worst nightmare. No one likes losses compounded by being on borrowed funds, so get off any margin as soon as possible.

4. Don't bother complaining to your broker or investment advisor - They have no idea what is happening and are completely in the dark like the rest of the financial world. If they knew a crash was coming, they would have moved your portfolio in 100% cash weeks ago (if considering a switch to independent investing, start by finding a good online broker).

5. Avoid trying to "call the bottom" - Market timing during a crash, even for the pros, is at best a hail mary pass. Investors are irrational and technical analysis is mostly obsolete until the waters calm a bit. Thus, buying shares of SPY or any other index ETF and looking for a quick profit is a bad idea.

6. If day trading, cut losses short and take profits often - Day trading can be very profitable because of the added price volatility intraday. However, during a crash price swings are much more sharp and fast so entering and exiting profitably with speed is critical.

7. Don't change strategies - A market crash is no time to steer your ship a different way and attempt changing your investment approach. The heavy risk you will take on will almost always cause significant losses for your portfolio.

8. Read market recaps each day - on my other blog TraderMike.net I post daily recaps of the market's action with stock charts. Over 9,000 subscribers use these recaps on a daily basis which serves as added insight into the market.

9. Stay disciplined - Highlighted through the above tips, discipline is absolutely critical for investment success. No matter what the situation, the disciplined investor has the ability to maintain a clear mindset. This allows for wise investment decisions that can in some cases make or break a portfolio, or even a trading career.

10. Cash is king - In the end, being in 100% cash is the safest place for a market crash. Being on the sidelines removes any potential psychological mayhem and ensures you sleep well every night while the market is on its way down. Good investors may not be 100% cash, but those that have strong cash positions and sniffed out the impending market weakness are the true winners.

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  1. [...] Navigating crashes is one of the hardest situations for any investor to be in. On my sister blog StockTradingToGo I wrote a great post recently that may be able to help shed some light on combating panic: 10 Essential Tips for Navigating a Market Crash. [...]

  2. [...] this market could be on the verge of another large and volatile break to the downside. Specifically I am watching 1120 on the S&P and 1100 thereafter. Cash is a position and it [...]