Panic in the Financial Market has led to investors clamoring for a return to ‘normal’ levels. The first signs of panic are commonly seen in the kind of behavior exhibited by market gurus during the recent stock market crash. Traders frantically tried to pull out of their positions. Some even made insane promises that the market will fall again and they’ll be rich by the end of the day. These panicky moves initiated a sell-off in the share market as shares were dumped to new lows.
If you are one of those investors who had bought shares at the top of the market, the day after another panic attack, then now is the time to sell. You’re not alone. Similar moves were seen during the global financial crisis. Investors who had been hanging on to their shares for too long found themselves losing even more money than before.
One of the reasons why a stock market crash can occur is due to too many traders selling their stocks too soon. In the case of the Great Depression, there was a great push for the business to close by the end of each month. The result was that companies, even big ones, were forced to close down. Many businesses that closed went completely belly up.
This is similar to what can happen in the financial market if the masses believe another panic attack is coming. Investors, scared of the future, start to pull out of their investments. This causes the share price to fall, and the market begins to tumble. Like during the Great Depression, there will be a massive sell-off in the share market and prices will begin to tumble.
What should we learn from this example? First, we need to realize that every market will experience a period of heightened anxiety before it settles down. The market may see another “mini-panic” period before it recovers. We may also see a rise in retail stock trades before another “mini-panic” period occurs. It’s important to keep in mind that no single cause will be responsible for all of the increases in market anxiety.
However, in terms of the examples above, investors who bought at the top of the market will be in for a rude awakening once the market begins to settle down. After the second “mini-panic” occurs, the savvy investor will have sold off his shares. In other words, the savvy market trader will have bought some stock at the top of the market and will sell it before another rally occurs. Since the second peak of market activity has already happened, it won’t be long before investors are back on the stock market floor.
Here’s the bottom line: if you’re worried about another round of retail trading panic, chances are that you haven’t been properly positioned. Don’t panic. Wait for the market to settle again. If you’ve been taking too many risks recently, cut your losses now. Patience is the order of the day!
Now here’s the important part: How do you know when it’s time to cash out on your retail trading positions? The answer is simple. When a market has reached its lowest points and is on the verge of falling even further, buy. Holding onto stocks for too long may indicate a failure to plan appropriately, or even to fully recognize an opportunity. Time to make a sell! There really is a Panic Rule for this!
Another question to ask when considering a rise in retail trading panic is: How long will it take to recover your losses? The market recovers from any disaster relatively quickly, especially when it is unavoidable. It may take weeks, months, or even years to completely recover from a market decline. During that time, however, it’s important to use some of your capital wisely and get in as much volume as possible. You’ll also find yourself with more money at your disposal once you’re back on the market.
Here’s one last question to answer: Is this a panic attack or a true indication that the market is heading back up? Some investors panic just because they’re not making as much money as they expected. That’s perfectly fine. What isn’t okay is beating yourself up about an opportunity lost. The markets do move, even up and down at random times. Don’t spend your energy thinking about how badly you failed.
If you find yourself knee-deep in retail trading panic, don’t worry. There’s no need to beat yourself up over it. Just figure out what went wrong and don’t do it again. You’ll be much better off for it. And besides, it’s probably better not to beat yourself up over it if it turns out to be another panic attack.