Few trading strategies in a stock market crash

While the U.S. market's tumble feels like a crash,market psychology has been hit hard, and it wouldn't take much to stoke a selling panic.

If a crash is imminent, CAs need to know how and when to react. Your clients, friends, neighbours, even enemies think as you are a CA, you must be a tad smarter, a little more informed, somewhat intelligent! I know all these are wrong reasons, we are CAs but also just ordinary folks. But can you tell this to people who look up to you for wisdom??? You can not!! So, here are some strategies to consider and use:

1. Forget about shorting

For most traders, selling short is too difficult. First, it's tough to get the timing right. Second, even when you're right, many rookie short sellers lose all their gains by holding too long.  Bottom line: Leave shorting to the pros.

2. Buy on the dip

Rather than sell short during a crash, it's better to wait and then buy on the dip. As long as you quickly cut losses if the trade doesn't work out, buying on the dip after a crash can make sense.

3. Trade like a coward

 It's not about who can make the most money the quickest, but who can employ risk management techniques to focus on survival and consistent profits. The idea is to remain liquid.

4. Consider put options for protection or profit

Buying put options to protect your stocks can make sense for some traders. When used in this way, you are buying options as a form of insurance. As the stock value goes down, the put option typically rises. Another strategy: Before a crash, experienced option traders might consider a long strangle, a sophisticated strategy that takes advantage of extreme market conditions.

5. Be careful in September and October

The market so far in August looks bad enough, but most previous crashes have occurred in September and October. Accordingly, these are considered the two most dangerous months of the year.

6. Stay on the sidelines

A more conservative strategy during a crash is to simply stay on the sidelines and wait for lower risk and higher reward opportunities.  When markets are too volatile, it's not the time to be a hero.

7. Be nimble

Because the market is so emotional right now, traders have to be nimble. If you do enter the market, tread cautiously. Right now, it's a stock picker's market."

8. Cut losses quickly

Rule No. 1 for traders is to cut losses quickly at a predetermined price. Therefore, disciplined traders may consider initiating a mental stop that is calculated in advance. To close the trade, however, use a limit order (absolutely do not use a market order in a fast-moving market).

The above advice was given by  Michael Sincere , if you want to read the entire article please go to:  

http://www.marketwatch.com/Story/story/print?guid=D45AE164-C1E1-11E0-9192-00212803FAD6

It would also be helpful to read another article Michael wrote about the characteristics and clues of market crashes: Read more: The characteristics of market crashes.

Happy investing!!

Caveat: I am keeping my fingers crossed! I don't 'put' , neither do I gamble! So, beware! Like they say in Lucknow: "Hey Sheikh! Apani, apani dekh!"

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