How To Take Advantage Of A Stock Market Crash

How To Take Advantage Of A Stock Market Crash

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In this post I am going to tell you How To Take Advantage Of A Stock Market Crash, So let’s start without delay.

The stock market is volatile. As long as the exchanges are open, every good stock price fluctuates, and the fluctuation is normal as there are demands and supplies in the market at different price ranges. But there are some unpredictable and unwanted situations where the stock price fluctuates only downwards. 

The stock market crash is one of the nightmares to people connected to the stock market, be it investors or traders. That’s why no true investors would ever wish for a stock market crash. It is an unpredictable situation where the overall value of your portfolio decreases from about 5% to even 20%. Investors and traders lost their hard-earned money due to a stock market crash. 

But there are still some tactics and tricks, which, if followed, the stock market crash would not be a nightmare anymore for you. In the following post, we will learn how to take advantage of a stock market crash and discuss how you can make the most of it. 

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  • Do Nothing, just chill
  • Buy Golds – during a market crash
  • Buy stocks – after the market crash ends
  • Buy dividend-paying stocks before or during the crash
  • Invest in foreign stocks
  • Trade with caution

Do Nothing, just chill: 

It might sound like a foolish suggestion, but it is not actually – we would like to advise you that this advice will only be beneficial if you are a long-term investor. You may have heard several times that long-term investors are those who stay focused on their portfolios in spite of short or long market corrections. Indeed, long-term investors only pick the good and quality stocks in which they have their utmost belief. 

That’s why if you are a long-term investor, you shouldn’t worry even a bit about market fluctuations or collection. Usually, the time span of a market correction is about one or even two months in the worst cases.

But history has proved repeatedly that there happens a bull run after any big stock market correction. And that’s the time when the stock price again climbs up and almost reaches the place where it was before the market crash. So, according to the advice of so many ace investors, being a long-term investor, you shouldn’t worry about a common market correction. 

But if you are not among the people who want to sit back and relax while the market is crashing, you should definitely check the following ways which tell what to do during a stock market correction. 

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Buy Golds – during stock market crash:

It is said that the stock market and the value of gold are inversely proportional. This means that when the stock market rises, the value of gold falls. It is definitely because as the stock market rises, it means that the country’s economy is growing well, and that’s the reason why the price of gold decreases. 

So during a grand stock market crash, investors suggest that you invest in gold. And rather than purchasing physical gold, we recommend you buy digital gold, which requires comparatively lower time and lower expense charges. 

If you don’t want to buy any form of gold like physical gold or Digital gold, you can also invest in Gold Bond and gold ETF, which is a way easier process of investing in gold than the previous two.

But it would not be wise to invest in gold during a stock market correction with a long-term vision. The reason is that after a mega-correction in the stock market, the market usually climbs up, and thus, the value of gold decreases. You can buy gold during the start and sell it when you assume that the market will rise again. 

Buy stocks – after the stock market crash ends

We discussed that when a market crash happens generally, a bull run follows every major market crash. The same applies to one of the biggest ever market crashes in the history of the crash, which all of us probably have witnessed, the Covid 19 crash. In that crash, the S&P index fell from 3400 to almost 2150 – 2200. 

The fall took to happen just one month which is surely not a huge time for investors to realize the grand market crash. Still, it took about four months for the market to reach the previous level. That said, investors get a sufficient amount of time to buy stocks after a market crash. 

Not only investors but all kinds of traders take advantage of the market fall and try to buy stocks at the lowest possible price. So after a big stock market crash, you should invest in more companies to get a big short-term gain in a very small amount of the market is getting ready to bounce back again or has already started to bounce back time. 

Buy dividend-paying stocks before or during a stock market crash

Stock market investors make money from the stock market in two ways. The first one is known to everybody directly from the stock by purchasing the stocks at a comparatively lower price and selling it at a higher price. 

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And the second one though it’s also very popular – earning from dividends. During a stock market crash, the first one is unlikely to earn anything for you and, instead of giving a positive return, this will pay negative returns.

But, during a market crash, the most effective way to earn money from stocks without short selling is to buy dividend stocks. Recently, there was no major reason behind the small crash in the market, but still, the market fell down.

In these circumstances, the companies were not in the losses, and when this situation happens, companies keep paying the dividends as usual.  But, certain things need to be considered before choosing any company just for dividends. 

Things to consider before choosing any dividend-paying company

As the discussion had proceeded earlier, only fundamentally strong stocks survive during any market crash/correction. That’s why before choosing stock for heavy dividends, one must see whether the company is fundamentally strong or not. 

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The second thing is that while choosing any dividend-paying stock, one should definitely check the past dividend-paying record of the company. If the company has constantly been paying its shareholders a good amount of dividends, you can surely go for the stock, but if the company is inconsistent in paying dividends, it is advised not to rely on those companies for dividends in the bear market.

In this context, you can also take the help of some measuring indexes like – dividend yield. If the dividend yield of any stock is about 3 to 5%, we recommend you choose the company. 

Invest in foreign stocks to take advantage of stock market crash

We can classify stock market crashes into two segments – the first one is a country paste crash where the stocks of a certain country go down due to any glitch or any changes in the policy of the government or any other internal matter, And the other one is the global crash as we had seen before the covid-19 pandemic has started.

So we can conclude by saying that if the stock market of a certain country’s crisis is likely to happen, all other countries’ stock markets will eventually crash. Taking this opportunity, investors can invest money in foreign stocks with the hope of getting at least some positive returns instead of losing money in our own country’s stocks. 

Trade with caution

A market crash is probably one of the most volatile times in the market when every stock price goes too low from the top high and vice versa within just a few hours. That’s a warning sign for traders, and in these kinds of situations, the risk of taking trades increases.

It’s likely that due to any significant announcement about the company, the company’s stock price may not meet the trader’s expectations/targets. Let’s think about one situation, where an intraday trader with amazing technical analysis predicted that the stock price of a certain company would climb $200 and set a target accordingly, but a major announcement caused the share price to go down except for the $200 level. 

That’s why it becomes risky to trade during market corrections. And this caution is very much applicable to ace investors or traders who are planning for their retirement because just one bad luck can make your hard-earned money go in vain. It is especially advised not to trade in the derivative segment unless you are a professional trader. 

Conclusion

In this article, we have tried to discuss how to take advantage of a stock market crash and possible things that you should follow when a stock market crash occurs. We have been attempting to include steps to follow as a trader and the steps to follow as an investor.

Again, we emphasize that you should not get scared by small market corrections if you want to be a real investor. Follow the advice, and we hope that these can help you reduce your losses to a great extent during any stock market crash. 

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I am a well-skilled experience Stock Marketer and Investor. I have good knowledge of the stock market and investment. I have completed Bachelors in Finance And Investment from the University of Virginia (US).
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