If there’s something no one likes as an investor, it has to be market downturns. But what are they? Well, Many traders and investors feel panic and terror when they read headlines that include things like “plunges,” “bloodbath,” or “crash.” Traders are used to markets going up and down. But in some cases, the decrease may be sharper and have more momentum. A market downturn is what this kind of event is called.
But if someone asks you how to make money in stocks during a market downturn, you probably wouldn’t have many answers for yourself, which is why in this article, we’re going to give you that answer. We’re going to dive into a step-by-step guide on how you can do exactly that. Make sure you read till the end, as we’re going to guide you through everything.
Psychology during a Market Crash
But first, you need to develop a clear understanding of the mindset you need to have, as that is super important for these steps especially if you want to learn how to make money in stocks, even if they have a good plan in place, in order to get through unpredictable markets. When the stock market crashes, traders are more likely to feel scared and panicked. In these kinds of situations, though, staying calm and patient can help you make good choices and use the proper trading tactics. A trader should not make decisions on the spur of the moment. Instead, they should carefully think about the circumstances and then make a choice.
Key Strategies for Surviving Market Downturns
As a trader or investor, you need to have plans that will aid you even when the markets go down. Let’s look at a few of these kinds of plans:
Diversify
One of the easiest strategies for traders and investors to get through a falling market is to diversify. Diversification can help one spread out risks across numerous organizations, sectors, and even asset classes. Not only can diversity assist in limiting losses, but it can also help traders find attractive trading opportunities.
Go Short
Market downturns can be a great way to make a lot of money. So, if you go short when share prices go down, you can make money. Traders can also employ a number of option methods to make money during a crash, which is a key part of how to make money in stocks in volatile markets.
Cost Price Averaging
A drop in the stock market or a crash might also be a chance to achieve a better average cost pricing. Investors or traders who plan to hold their investments for a long time can buy more shares when their prices go down. This will help them acquire a better average cost pricing and make money again faster.
Stay Put
Changing or adjusting your approach during a market crisis can help, but you can also get through a downturn by merely staying still. An investor can get through market downturns by waiting them out.
Risk and Money Management
Managing your risk well is one of the most important things you can do in a bad market. Setting rigorous stop-losses can help you protect your money and relocate it to safer or different types of assets.
Resilience of the Top Traders
Now, the market downturns can make even seasoned traders get scared, which is why it is important to take a look at the top traders and understand how to make money in stocks, just like they did. We’re going to use 2 major examples, George Soros and Jesse Livermore, and the table below explains it better.
| Trader | What Went Wrong | How They Bounced Back | What We Can Learn |
| Jesse Livermore | Lost huge amounts of money, and even went completely broke a couple of times. | He didn’t give up. He changed his approach, learned from his mistakes, and during the 1929 crash, he actually made big money by shorting the market. | Be flexible. If something isn’t working, don’t stick to it out of fear—adjust and try again. |
| George Soros | Faced massive losses during big events like the 1987 crash and the Russian debt crisis. | He reacted quickly, cut his losses, and shifted his positions. He wasn’t afraid to change his mind when the market changed. | Don’t stay stuck to a losing idea. It’s okay to change direction when the situation changes. |
Conclusion
Remember, a market downturn isn’t the end of the world. Throughout the history of the stock market, there have been multiple market downturns, and top traders have shown the reliance needed to resist them. With a proper mindset, the steps mentioned, we can survive even the most brutal crash, just like the top traders. Resilience, patience, agility, and adaptability are some of the fundamental abilities that can allow one to survive and even make gains from stock market catastrophes. Traders can better handle a drop in the stock market if they know a lot about investing methods and how to minimize risk.
