Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How to Make a Quick 20% When the Stock Market Crashes

Stock-Markets / Financial Crash Aug 26, 2015 - 03:14 PM GMT

By: Investment_U

Stock-Markets

Marc Lichtenfeld writes: Have you ever gotten into an argument or fight with someone who goes from calm and rational to nuclear in an instant? It’s scary.

In my life, the few scraps I’ve gotten into took the typical course. A heated debate leads to name-calling and threats. Finally, one guy pushes the other and it’s on.


But I’ve always walked away when the party with whom I’m having a simple disagreement explodes out of nowhere. That person is unstable, and you never know what’s going to happen.

That’s how the market felt on Monday.

It was not an orderly decline. If it was, it still wouldn’t have felt good - but it wouldn’t have been as downright scary.

The sudden plunge, attributed to the slowdown in China, was exacerbated by high-frequency traders’ computers dumping shares all at once. It left the market out of control as there was no human to analyze what was going on and figure out a way to restore the market to order.

In the old days, when specialists still traded on the floor of the New York Stock Exchange, if there were an overwhelming number of sell orders, the specialist might delay the opening of the stock until they were able to make an orderly market.

That doesn’t mean the stock wouldn’t plummet or that crashes could be entirely avoided, but it would eliminate these computer-caused flash crashes that we’ve seen a few times over the last several years.

It also didn’t help that many of the online brokers were down or impaired during the frenetic trading of the morning. I know that I was still getting very slow data even in the afternoon.

How to Handle a Crash

“I can’t tell you how many emails I receive from readers who think it’s better to abandon their stops during crashes because ‘the market always comes back.’  “It often does bounce the next day. But stops are a tool to manage risk. The last thing you want to do in a crash is ignore risk management. You could end up losing a lot more than you ever expected.”Monday night, in Wealthy Retirement, I outlined several things you should do when markets tank. These included sticking to your trailing stops (as Matthew Carr advised yesterday). I can’t tell you how many emails I receive from readers who think it’s better to abandon their stops during crashes because “the market always comes back.”

It often does bounce the next day. But stops are a tool to manage risk. The last thing you want to do in a crash is ignore risk management. You could end up losing a lot more than you ever expected.

Protecting your capital is vital when markets crash. But...

What if you could make a quick 10% or 20% when they do?

Josh Brown, who writes The Reformed Broker blog, recently discussed a unique - albeit speculative - way to capitalize on the panic of a crashing market. When markets behave like they did Monday morning, put ridiculously low buy limit orders in and see if you get filled.

For example, say you were interested in biotech giant Celgene (Nasdaq: CELG), which closed Friday at $119.05. You see the market is in an all-out panic on Monday morning, so you put in a buy order 20% below Friday’s close at $95.

You might think to yourself, there’s no way that bid will get hit...

On Monday, Celgene opened at $104.28. It then swiftly fell to a low of $92.98 as the computers and panic drove the market lower. Your $95.25 bid would have been filled and you’d have owned the stock 20% below Friday’s close, with no change in the company’s fundamentals.

When Celgene quickly bounced back and closed at $113.38, you would have been sitting on a 19% gain - all in just a few hours.

Starbucks (Nasdaq: SBUX) is another example. The stock closed at $52.84 on Friday. If you put a bid in 20% lower at $42.27, you probably would have gotten filled, as the stock bottomed at $42.07. It closed at $50.34 on Monday - another 19% gain.

There is nothing magical about the number 20%. I’m just using that as an example of a big discount to the closing price of a stock. You may decide 10% or 25% is better for you.

The important thing to remember is that you should use this strategy only with stocks that you’re happy to own even if prices fall further. Additionally, be aware that in a crash, stocks can in fact go lower.

Just because your stock is down 20% when you buy it doesn’t mean it can’t fall 40% on the day/week/year.

In fact, sometimes crashes are only the beginning of down moves. So even though you’re getting a 20% discount, you could still lose money in a bear market.

But I like this technique, particularly for some dividend payers that I’ve had my eye on. Imagine if you bought Verizon (NYSE: VZ) when it was down 10% yesterday. You’d now be earning a 5.3% yield. Or you could have gotten a 3% yield on JPMorgan (NYSE: JPM) if you had bought it when it was down 10%.

Just be careful; this strategy is not for the timid. But if you’re willing to own a stock lower, even if it continues downward, you might find yourself up a quick 10% or 20% by putting out ridiculous bids that you think will never get hit.

Good investing,

Marc

Source: http://www.investmentu.com/article/detail/47271/investment-strategy-make-quick-20-percent-when-market-crashes#.Vd3yx03bK0k

http://www.investmentu.com

Copyright © 1999 - 2015 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in