Surviving a bear market for the first time

Although we’re far from reaching the peak of the coronavirus pandemic, its effects are already beginning to send shockwaves through the world economy, fueling economic growth fears and changes in investor sentiment. Like the previous SARS and MERS outbreaks, the novel coronavirus hit all countries by surprise and inevitably changed online trading. There’s an interesting difference, however. The portrait of the modern trader has changed considerably since then, and many new players have entered the market. According to a 2018 report from BrokerNotes, traders aren’t who they used to be. Of the 13.9 million online traders active at the time of the study, 58% were Millennials (25-34 years old), and the percentage of traders over 45 had declined. In the UK, for instance, the average online trader was just 27 years old.

This means that most online traders are experiencing a volatile market for the first time, and what they decide to do now can influence their yields for years to come. It’s common knowledge that global crises have a significant impact on trading psychology, and it can be difficult for a beginner to stay rational when facing uncertainty and wide-spread panic for the first time. So, how can you keep your sanity, stay disciplined, and turn this into a learning experience?

Create a contingency plan

In trading, like in medicine, you must stay alert, but not anxious when dealing with a crisis. A pandemic isn’t something you should ignore or take lightly because it can and will affect your finances. While you can’t control how the disease progression will play out, how the market will react, and how currencies will be affected, you can manage your finances and create a buffer to avoid losses. This is when that emergency fund that personal finance experts recommend comes into play. Before considering any bold moves, such as digging into your retirement fund or making additional investments, make sure you pay household expenses and personal loans.

Only after you do that should you consider liquidating certain assets and investing in others to diversify. Again, this is where preferences vary across generations. A 2019 eToro survey found that, in the event of an economic crisis, Gen X would turn to commodities, while Millennials would choose crypto assets. While the COVID-19 pandemic showed that crypto is by no means invulnerable, Bitcoin has begun to recover and on March 24 cryptocurrency value rose $14 billion and Bitcoin was up over 24% in 24 hours.

Understand how previous bear markets played out

These are confusing times for a trader who’s never experienced a bear market before. Still, if you look at similar events in the past, you’ll see that history tends to repeat itself and that you can learn a lot from previous economic crises. Analyzing how other bear markets played out can give you a clearer overview and convince you that no matter how bleak things look now, the market will eventually recover.

The SARS epidemic of 2003 and the H1N1 pandemic of 2009 both had a significant impact on the economy and cost governments millions, but the world did recover from them. It’s important to remember that in times like these, all of humanity is united by the same goal. Researchers are hard at work trying to develop vaccines and cures, central bankers are taking prompt action to calm the markets, and governments send bailout packages to support the economy. So, while multiple sectors coming to a halt will most likely cause a recession, it won’t be the first or the last.

Stay informed, but avoid the mediatic buzz

Markets react differently depending on how well-prepared countries are for the pandemic, how quickly they impose national quarantines, and what measures governments take to mitigate the impact of the coronavirus. As a Forex trader, you should stay up to date with all these things to understand how currencies might fluctuate. However, you should be very careful where you get your news from, and you have to learn to filter out the mediatic noise.

Compared to previous pandemics, COVID-19 came at a time of unprecedented Internet usage, so you’ll be getting a huge influx of content coming from all sources. You’ll be tempted to check on the news multiple times a day and refresh your newsfeed constantly to control your anxiety, but acting on mediatic buzz can be harmful and force you to make rash decisions.

Not all the content published online is reliable. Some of it, the one coming from official sources, is indeed precious, and you should use it to make informed decisions. But, for the most part, pandemics cause a mediatic buzz. Influencers and so-called financial experts will post estimated statistical models and discuss the economic implications of the coronavirus pandemic, and news sites won’t hesitate to write bombastic titles to drive traffic. In all this noise, you have to stay smart and calculated. Here are insights on Forex brokers from trusted sources, and don’t forget to follow veteran investors on Twitter, and stay up to date with updates from the World Health Organization and the World Economic Forum.

Don’t abandon your investment principles

The midst of a bear market isn’t the best time to change trading and investment principles. Adapting is one thing, but making a complete shift fueled by negative emotions might hurt you in the long run. A classic piece of advice says that you should do nothing and wait out during an economic crisis because the dust will settle soon. For traders who are approaching retirement, that’s not the best idea, but if you’re young and you won’t be needing that money for at least ten years, not reacting could be an option. Just make sure you still follow the news and realign your portfolio when required.

The Yucatan Times
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