Tricks of the trade, for when things don’t go your way: How to deal with market downturns

Tricks of the trade, for when things don’t go your way: How to deal with market downturns

Written by Katie Gomez

If there were a song that could embody the life of a stock market investor or trader, it would be “You Can’t Always Get What You Want” by The Rolling Stones. Things rarely go how you expect them to in the stock market, and traders must constantly learn to roll with the punches. Over time, it can be debilitating to one’s motivation to stick with it. Come earnings day, traders can get caught in a wave of emotional turmoil in a matter of minutes. So how do we perform when things don’t go our way? How do we recover? In this article, I will give you some answers I found work best for most traders dealing with downturns. 

Just thinking about a stock falling can make your stomach churn; seeing all that money in your account disappear is a frightening thing to experience, yet one every trader must endure. Even the best traders are not exempt from this feeling but are better equipped to deal with it. To succeed in the market, you must learn how to prepare instead of panic and respond instead of react when the market starts treading in a less desirable direction. 

Playing the long game 

We must practice patience and trust in these testing and trying times. Although it sounds cliche, it is essential to remind yourself when it comes to the stock market, “what goes up must come down.” It may help to recall an experience in which a stock you invested in rapidly shot up and the excitement you felt; the same thing is happening in a downturn, just in the opposite direction and causing you anxiety. Market downturns are often followed by periods of recovery and growth; we just have to stay calm enough to let it play out before making rash decisions.

If you have a well-thought-out investing or trading plan, stick with it! (especially in downturns). However, if you are constantly swaying from your plan/strategy due to the fear instilled by short-term market fluctuations, how can you ever expect it to bring you success? Stay focused on your long-term goals and the logic behind these fluctuations to maintain confidence in the potential of moving forward instead of letting your emotions get the best of you. 

Why do stocks go down in the first place?

We must start at the source to understand these market dips and crashes better. To not let our emotions get the best of us during these periods, we must turn to logic instead, understanding why these stocks even plummet in the first place. Stock market prices fluctuate because of market forces; as supply and demand levels shift and change, so do the share prices. 

For instance, when a company is doing well, share prices increase because more people are flocking to buy its stock (as opposed to selling it), and when the company is underperforming, vice versa. 

When we take the time to analyze the market and understand the reasons behind the decline, we wake up from the emotional whirlwind and start thinking rationally again to come up with appropriate solutions. That said, it is crucial to stay informed about economic indicators, industry news, or other events that could be affecting the market (there is always a source to the madness). 

Taking care of your portfolio during the downturn

Taking the time to assess the state of your overall portfolio will help broaden your perspective when particular investments are down. Evaluate the performance of individual stocks or other assets to consider whether significant adjustments need to be made, such as diversifying your holdings to save on potential personal losses or asset reallocation. Impulsive decisions can be harmful not only to individual investments but to your portfolio standing as a whole.

When you can’t trust yourself, look elsewhere.

When you know you can’t shake the emotionally warped mindset in a downturn, there is no shame in seeking advice from others to get you back on track. When your investments get negatively affected by a downturn, your portfolio is put at risk, and it may be time to seek help from a professional. Whether it’s a financial advisor, investment professional, or just a well-experienced peer, two heads always work better than one, especially in times of crisis. Another person can offer you insight, reassurance, validation, and information you couldn’t get alone. 

When our brains get stuck in crisis mode (fight or flight), it can be impossible to find a logical solution, so seeking help you navigate through the panic and find yourself on the other side. 

Focus on the silver lining.

Nothing gets you out of a market funk quicker than discovering a new way to make money, and taking advantage of the dips is how you make money when stocks are down. Market downturns can be soul-crushing but also a goldmine for new opportunities. It’s all about what you focus on. In addition, the dips showcase stocks or assets previously overpriced starting to hit their lows, becoming more attractive in value. 

However, buying the dip is more complex than it seems; it can be tricky to time the fall and be prepared. You also must be willing to sacrifice that money if you time it wrong, and the price you assumed was its bottom continues to fall. 

How do you prepare for a dip if that market is so unpredictable? 

The best way to be ready to buy in a dip is to be specific on what you’re looking for and not just choose randomly from a pile of low-priced stocks. To successfully profit from buying in a dip, you must keep a running tab of all the stocks you want to own in the future; this way, you are ready with the information needed when the opportunity strikes. 

Reflect, reassess, and readapt.

The volatility caused by market downturns can lead to significant increases in stress and anxiety, allowing you to take a beat and reassess where you are currently. Your portfolio may be too aggressive for your current level of comfort. In that case, consider adjusting your risk exposure to align with your current risk tolerance to help you feel more secure in your investments.

Market downturns often throw a big monkey wrench in our plans, reminding us that things don’t always work out exactly as we hope. We can choose to panic, complain, quit, or learn how to deal with it, reassess, and get back on track. When we find a way to stick it out through a downturn caused paranoia and focus on the future, the market corrects itself and puts you back on track; sometimes, even the seemingly detrimental losses lead to unexpected gains. The Rolling Stones say it best, “you can’t always get what you want, but if you try sometimes, you just might find… you get what you need.”