Downtrend trading strategies can bring sufficient profit in downtrend market. Downtrend market is very sensitive to take any trading decision. Anyone can make money in uptrend market. But, many traders lose capital in downtrend market. In stock market, fear is stronger than greed. Hence, panic sell happens in downtrend market.
When do you understand downtrend market?
Broad market index is a major indicator to know the market condition. Think about S&P 500 index. This index consists of top 500 companies. If these companies price are rising, you see that total market movement is in uptrend and vice versa.
Another indicator is money flow index. When money injects in a stock market, that market’s stock price may rise because of buying pressure. If money goes out from market, this stock market’s stock market starts to downtrend.
Top 5 reasons for downtrend market
1. Overvalued companies in a specific stock market
2. Economic instability of that country
3. Money out from the market
4. Invest on stock return is less than other sources of investment return
5. Weak regulatory body
Some technical and fundamental indicators can hint you a possible downtrend market.
What are the trading strategies in downtrend market?
However, downtrend market is not suitable for all traders. Even intelligent and experienced traders have to lose money in downtrend market.
Therefore, if you are a newbie, you should seat aside in downtrend market. You have to learn about trade trend reversal to win in downtrend market. You can follow these strategies to take your decision.
10 downtrend trading strategies
1. At first, try to find out downtrend as early as possible. Waiting is better than making any trading mistake. On the contrary, late trend finders have to lose capital in downtrend market.
2. Secondly, get out of trade . Even it is better to get out with 5% to 10% loss.
Real Example
Some days ago, my trading stock exchange started downtrend movement. Then, I thought it was correction. So I was waiting for uptrend. Downtrend has been continued. On 4th day, my portfolio reached 15% loss. From then, broad market index was reducing drastically.
On the 4th day, I sold my shares with 14.5% loss. Moreover, On the 5th day, this stock was also losing price faster. If I sold this stock on 1st or 2nd day, I only had 5% loss.
3. Thirdly, make quick decision to cut off your loss. Make sure that stop loss is the golden rule of stock trading. If you have reserve your capital, you will get better opportunity in future. Try to develop your own trading strategies.
4. Fourthly, wait for market reverse trend. Uptrend or downtrend may occur for short time or long time. In this paradoxical situation, you should not take any trade until you understand the reverse trend.
5. Fifth, preserve your capital for next opportunity. When the market climbs uptrend, invest on fundamental stock. Fundamental stocks are less attractive for traders. But in downtrend, you can buy fundamental stock to observe the trend. Later, if the uptrend is confirmed , you can choose your desire company.
6. Sixth, every downtrend creates a better opportunity for all. Just you need to identify trend. Remember that market is always right. Just follow the market.
7. More careful about short selling. If you can understand the trend, you can sell short . Otherwise, you should take rest. After your short sell, if the trend goes upward, you have to face huge loss.
8. In many countries, day trading and short selling are not allowed by concern authorities. In this situation, you should wait for next trend.
9. Preserving your capital is the golden rule of stock trading. If you take trade in downtrend market, you must follow stop loss rule.
10.Finally, study the previous trend. Try to understand the previous pattern of trend. Apply past experience to take decision.
Preserve your trading capital in bear trend by any cost. Follow the golden rule of stop loss. 3
Lear about day trading strategies and swing trading strategies in order to know the right time of buying or selling stock.
Conclusion
In downtrend market, you should preserve your capital. If you want to take any trade, think carefully. Correct your trading mistakes by following stop loss rule.
Founder of The Financial Ask
