In the world of finance, complaints about stock prices are a common thingIf you have been in the trading game long enough, you have most likely experienced a sharp decrease in your stock choice’s value, which is called a crash.
Although crashes in stocks can be very dramatic and difficult to deal with psychologically, they can also provide excellent opportunities for traders who know what to do to mitigate any possible damage done by these events.
Three things need to happen when a stock starts crashing: assessing how bad it is based on its historical performance after similar situations, cutting losses quickly if it seems like the situation might get worse, and finally protecting yourself from future recurrence of this event.
Assess How Bad It Is
Find out if any industry analysts predicted the drop or if it was unexpectedDid Apple announce its newest iPod? Has Google dropped hints about an update to Android recently? Analysts often predict a drop after new information comes out regarding a company or product line, therefore it’s always best to check an analyst first before you panic about how much money you have lost overnight because of what happened.
Find Out Why Your Stock is Dropping.
The following step would be to find out why your stock is dropping so precipitouslyWas it because of an unanticipated event, like releasing a competitor’s product that makes yours obsolete? Did Google announce its newest operating system that has every feature you wish your phone had, and now everyone is switching to them? Did Apple declare bankruptcy?
These are all pretty extreme scenarios, but they do happenUsually, what happens is that there was some kind of event within the company or industry (again, like the release of new products) that reflects poorly on how secure their position in the market isFor example, perhaps your technology business got hacked, and thousands of customers’ credit cards were stolen; this would make investors very nervous about supporting further development efforts.
Also, look at what other industry analysts and forex news are saying about your drop in valueIf analysts seem to agree that it was justified and was expected due to recent events, then there’s no harm done; you can rest easy knowing that you’re not alone and that everything will probably work out fine (or as fine as things ever get for technology companies).
Figure Out How the Stock’s Price Will Change
The next step is to determine how the stock’s price will change under different scenariosYou need to determine whether it will bounce back in a few days or if this is a prolonged crash that you need to prepare for by estimating its future value over the next couple of weeks.
Review Your Reasons for Buying the Stock in the First Place
You should review your reasons for trading in the stock in the first place and try to determine whether they are still validIf not, then there is no point in holding on to your shares because their price will most likely continue falling until all of your investment has evaporatedOne common reason for buying stocks that tend to see significant crashes is lower-than-usual trading volumes.
If you have been following this stock for a while and trading volumes remain low, then it might be time to cut your financial losses and abandon ship before the price goes down even further.
Finally
When dealing with crashing stocks, it is essential not to panic because plenty of opportunities are presented during such situationsTo learn more about how crashes happen and what can be done during stock failures, contact a reputable online broker from Saxo Bank at Saxo capital markets pteTrade on a Saxo Bank demo account and practise different trading strategies before investing real money.