Stock market is a very volatile and sensitive things and there are always long term to short term crashes that occurs quiet often and during this time it is best to keep your emotions in check in keep a level head and deal with the crash, it is said to never invest more than you are willing to lose. Below will be listed how to deal with a market crash and things you can do to keep yourself secure.
- Do nothing: If you are a long term investor and don’t mind waiting then the best thing to do during a stock market crash is just wait, most stock market crashes experienced since 1982 have been relatively short lived and the stock goes up sooner or alter so it is best to not make any big moves and just wait out the crash.
- Lean Technical analysis: Thought you can never really tell where the stock market is going to go you can get a basic knowledge of the price chart and how to read it along with technical patterns which can help you with timing the stock market and when to buy or sell also how long the crash might last.
- Buy the Dip: This advice only works if you are certain that the market crash wont last for very long and is only short lived also known as cyclical bear market since during this time the stock is considerably cheaper and when the market starts to go up you can gain a significant profit.
- Diversification: It is generally a good idea to spread your portfolio among different things like stocks, bonds and other alternative assets which is a effective defence strategy for stock market crashes, it is best to diversify especially when you feel the market is very volatile and might crash soon.
- Hedging: Learning to hedge is one of the best things you can do to insure yourself against negative events and market crashes, it acts like an insurance and is considered an intermediate to advance strategy used by investors and is mostly effective when dealing with a single stock portfolio rather than an diversified portfolio which would likely be cost prohibitive.
- Defensive stock: One of the best defence against stock market crash is to take stock in Defensive Industries whose stock remains stable even during stock crashes due to the high demands for their product and the fact that people still use their products during hard times. This stock provides a constant dividend and a stable earning.
- Inverse exchange traded fund: A popular investment in bear markets this is an exchange traded fund which is traded on a public stock market, it works using short selling, trading derivatives and other such techniques to increase or decrease its value in inverse of the index it is designed to track hence if the percentage of a stock increases 1% then the EFT of that stock decreases 1% and vice-verse hence during a stock market crash the fund go up giving you a profit wile the rest of the market drops.