Four approaches to position yourself during a market correction

Financial market corrections are inevitable and are always an unpleasant event that harms investors. The main issues that lie in the heads of traders and investors are: How can we protect ourselves from these events? How to protect our investments and position our portfolio at such an uncertain time.

Waiting for the moment to go back to the market is vital, and this signal will occur when several indicators are analyzed. Investors, for example, can also use the swing trading approach, thus always remaining on the right side of the market. Below are four steps that will help us survive during market corrections.

Analysis of the stock market situation

The reason this situation is analysed is because most of the stocks usually move alongside the broad indexes. It is important to note that when a correction is driven by so-called a vertical break or fall below the 50-day average, the subsequent movement the next day will most likely also record a decrease. So, at the onset of these moments, you should always trade carefully. On the other hand, this is also a time when investors can run test deals to see if there is a chance for the market to go up.

News is a powerful mover and a component of the markets. Investors should be vigilant and cautious. The creation of a new ascending market trend may occur even four days after the bottom of the correction has been reached.

Swing Trading

This is more a style than a strategy. This style focuses on taking small profits from short-term trends to reduce losses faster. Earnings may be less, but if they are done over time, a great annual return can be achieved. Swing trading positions usually last a few days to a few weeks. Of course, if necessary, they may be active for a much longer time.

So as long as the correction continues, investors can look for short-term opportunities to balance losses from their core portfolio, thus remaining on the market.

Hedge your positions

The ability to spot top stocks during a market adjustment is key. This is because these stocks may be among the first to beat up strongly when the market stabilizes and the new upward trend begins. As an example we can give the shares of Zscaler, Uber and Beyond Meat. They are all familiar names in the world of shares, with strong and spectacular movements of their graphics.

Zscaler - a familiar name in the software industry. Shares fell shortly below the 50th creep period when the company's reports came out, but as you can see, investors quickly returned to the company, and the price recovered at a very high pace.

Uber Technologies nevertheless recovered and surpassed the initial price of its IPO. The price is again above $ 45, giving strong momentum to the upward movement. From a fundamental point of view, however, care should be taken to invest in the company.

Beyond Meat - a strong IPO. The price outpaced the initial offering price of $ 50, with the company traded at about $ 130. The company's reports went out stronger than expected, firing the shares up.

These are just exemplary actions. But they are indicative of the strong twists and turns that can happen in the markets. Taking advantage of these "percussion" moments gives us the dominance over the rest and the lead before even the new upward trend in the broad indexes begins.

Source: Investor's Business Daily

Photo: Flickr

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