Posted by strudy on Jul 2nd, 2008

What Are Your Options When the Market Takes A Nosedive?

t is inevitable that in your trading career numerous downturns in the share market will occur from time to time.

Now you have a few choices available to you but this also depends on what sort of trader you are as to the effect it will have on you at this time. “There are basically four types of trader which we will discuss below.

I. If you are a long term trader you won’t be too concerned about selling your stocks currently held in your portfolio as you know from past experience that the market will regain its equilibrium and eventually return back to normal.

2. If you are a medium to short term trader then of course you see your immediate profit going down the drain. But if you have learnt from past experiences (hopefully) you would have had a stop loss set in place to lock in those profits or to cover you against substantial losses. So therefore your losses are minimal. You can then buy back those same stocks at bargain basement prices.

3. But if you are like the average trader who did not employ a stop loss and was not prepared for any downturn then you have two choices

A. You will do what the majority do and that is to panic and begin selling your stock at whatever the market price is currently at or B. You can sit back and pray that the market does not go down too far. You then still have the option of selling or waiting till you stock starts to regain in value. Which could take time? In the meantime your cash is tied up and any profit that you could have made elsewhere goes begging.

4. Now if you are a day trader then because you don’t carry any open trades overnight the downturn does not affect you in the slightest. In fact you are delighted, you can sit back and watch the chaos and the bloodletting unfold around you. You see it as chance to make some quick profits once the market starts to do a u turn upwards

The thing I like about a market correction is that it also affects the “Blue Chips” as well sometimes in the vicinity of 5 to 10% if not more. This is the time to go bargain hunting.

There is an old truism,” Buy in gloom and sell in boom.” And that still holds today.

Christopher Strudwick is a keen successful share trader on the Australian Stock Market. Visit his weblogs for more free articles and useful information at both http://www.asxnewbie.com and http://www.aussiewealthreview.com