Up and Down

In just a few months the coronavirus pandemic has caused the markets to go belly up. The markets, going strong for the better part of a decade, started taking a nosedive globally around mid-late Feb this year. The bears gripped the markets and within the next one month the BSE SENSEX lost over 15189 points. In the US too, Dow Jones Industrial Average lost over 10000 points, and S&P lost over 1136 points. The fall reversed in the US markets on March 23 and the markets started looking up, the US ones more so than the Indian ones.

Many people have tried to explain the volatility by pointing to the changes in market sentiments due to COVID-19 pandemic, and hopes for a treatment; others point to the mixed signals from the US job market. NYT says that the US economy entered a recession in Feb 2020. None of these reasons seem to provide a comprehensive answer, or a way to predict what happens next.

Will there be another market crash? If it is, will it be bigger than the earlier one? Smaller? How can you, as a trader, protect your investment?

Is There a Solution?

Market volatility and instability causes great anxiety in the minds of investors. Besides market data people also tend to rely on daily news-flow which might not be related to markets. Bad news creates fear. The psychological aspects are highly driven by fear of losses and further crush in the exchange. Read our article on psychological factors which affect trading for more info.

Using automated systems for trading can take the fear factor out, and help you trade based only on cold, hard data. If you're a day trader, consider creating your own trading strategies. Once done, you can deploy these strategies on trading systems to trade on your behalf. There are many advantages to trading using strategies:

• Use past data for analysis - With the market being so volatile as it is, it's hard to keep track of market trends. A good algo-based trading strategy can make buy and sell decisions more efficiently, basing decisions on past trends.
• Less human intervention - In the market as unpredictable as today, you may get confused by some false claims or rumors. Automated systems work to remove emotions from your trading decisions. Your strategy, once created will stick to just the data it receives and trade accordingly.

A word of advice - despite of all your efforts traders tend to lose money at times. This is specially true during periods of high volatility. The key is to stick to a trading strategy, automated or manual, long enough to see you through. An experienced trader will use his/her intuition, and past data to create a trading strategy. Things are hard and unpredictable, but these are the times when we look for solutions. Automated trading platforms could help.