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How To Avoid A Stock Market Crash Like 1987 Or 1929
Everybody knows about them: Stock Market Crashes, the likes of 1987 or 1929. And they are feared among many if not all investors.
Tales have been told of investors going bust, of the savings of an entire generation disappearing, and how it happened quickly and without warning. But is this true? Was there really no warning of an impending stock market crash? In this article I am going to show that there are warning signs, and how you can avoid future crashes.
The simple fact is, in both major stock market crashes like 1987 or 1929, there are a few clues we have that will alert us to a crash in today’s market.
Number one is that prices in the market fell quite a while before the stock market crash occurred. In fact in both cases of 1987 and 1929, prices fell for a full seven weeks, from the peak to the start of the crash.
The second is that even though prices did fall for seven weeks prior to a stock market crash, there was a bounce in between. What this means is that prices fell, then they rose for one to three weeks, before falling back down through the previous trough in price. And the week after is when the stock market crash happened.
If we look at this particular movement on a price chart, it will look like a downwards zig zag. And it was so prominent that Charles Dow wrote about it intensively in the late 1800s – making it his own as it is called today: “Dow Theory”.
Pretty simple so far, isn’t it? But there is one caveat – I know what you’re going to ask. Will a stock market crash happen every time we see a downwards zig zag? Unfortunately not. If it crashed every time, we would have seen dozens over the last hundred years.
But Dow Theory will give you fair warning of a bear market also – in fact the same action occurred in 2007 – long before the “experts” were calling an actual bear market or recession. Sometimes the down move will be severe like 1987 or 1929, sometimes it will be prolonged like in 2008, and sometimes it will simply reverse again and resume an uptrend.
Overall, it gets it right around 70% of the time. Not bad considering most fund managers can’t even claim to be right 50% of the time.
So what does this mean for a trader or investor like you? It’s simple. If you see the price on the index fall, then bounce for one to three weeks and then fall again through the previous trough in price, now might be a good time to lighten some of your positions. It pays to be ready, and if it doesn’t occur you can always get back in.
Avoid the next crash! With many more ways to avoid a stock market crash, as well as a free course on trading and investing at www.ASXmarketwatch.com.
Top 10 Share Trading And Investing Mistakes
Top 10 share investing mistakes are revealed. These mistakes apply to any form of investing.
The Rewards Of Trading The Forex Market
If you really love a good challenge, you’ll love learning to trade in the Forex market. Learning how to trade in foreign currencies can be one of the most rewarding challenges you’ll ever face. You’ll learn so much about yourself while you learn how to trade, and you’ll be able to apply everything you’ve learned to all aspects of life.
How much do you really know about yourself? How well do you handle pressure? How do you handle your emotions, and what is your level of self-control? When you begin to learn to trade in the Forex market, you’ll learn everything you didn’t know before about these aspects of your personality. If you want to be successful as a trader, being able to make objective decisions and handle pressure will be your most valuable tools.
It’s not easy learning a new skill, and no less can be said about learning the Forex business. It takes hard work, dedication, passion, and a good teacher or knowledge source. It also involves a good deal of trial and, perhaps more importantly, error. In other words, there is quite a learning curve you have to overcome. This can be done in relatively short order, however, if you can find a good mentor to help you learn the business. Indeed, a good mentor is probably your greatest asset as a new Forex trader.
Sure, you can learn the ropes yourself, but as is true with every new skill, you’ll find there are a lot of bumps in the road at the very beginning. Finding a good, honest mentor will help you overcome those initial obstacles and help get you on the road to consistent profitability much faster than if you did it all on your own. This doesn’t mean you’ll always have smooth sailing, but you’ll most likely learn how to weather the storms much better with the aid of a good teacher.
You have to develop a positive attitude when you are trading in the Forex market. There may be certain times when you cannot avoid incurring losses. But the key to success is to put behind those losses and stay focused and trade with confidence.
The sooner you learn to control your emotions, the sooner you will gain the status of a good trader. Whether you make a gain or a loss on a particular trade, you need to stay with a cool head and be focused. That way you will be able to minimize the risk of trading in desperation.
The easiest way to keep your emotions in check is know what you could lose with every trade and accepting that you could lose that money before you make each trade. It will come as a shock to know that many new forex traders don’t manage their risks or think that it is possible for them to lose money with a trade.
If you learn to trade in the forex currency market you will obtain a great skill that you can keep for the rest of your life. Professional traders that you come across will be disciplined and be great successes in other tasks that require a great deal of discipline as well. People in general could use some more self-control and discipline to balance their lives.
If you want to make find out more about forex trading, make sure you visit: course forex trading. Don’t reprint this exact article. Instead, reprint a free unique content version of this same article.
Investing in the ASX Share Market – Don’t Trade Without This
So you want to increase your wealth by investing in ASX Shares? Start out on the right foot and you could eventually supplement the income from your job. But make one of a few fatal mistakes and you could see yourself right out of the market, never to trade again.
What do I mean? Let me give you an example: Let’s say you started putting $150 a month into ASX Shares in 1980. That’s around $5 a day. It earns an average of 15% per annum over the years including dividends. If you re-invested all your returns, today it would be worth over one million dollars – $1,038,490 to be exact.
But many people when first starting out make a few fatal mistakes – maybe they lose a little (or a lot) of money. And they stop investing. They get scared out of the market. And because of this they lose out on all the rest of the gains over the years – they lose out on that million dollars we just discovered.
So here is the important part – what you need to know when trading ASX shares. It is often the most overlooked part of trading or investing: It’s your Trading Plan. In fact, don’t trade shares without one. But finding a trading plan can be a daunting task. Where do you start?
Well, if you take 100 different people, you will probably get 100 different trading plans. We are all individuals, and we all have different thresholds for risk. Therefore a good place to start with a trading plan is the following:
1: Your Rules for Entry and Exit – or in other words, your rules for when you buy a share and when you sell a share. There are many different ways: some people use fundamental reasons like a company’s earnings before interest and tax (EBIT), and others use technical reasons, like a breakout from price consolidation or the crossing of a trend line.
2: Your Money Management Rules – these are the rules for how much you will invest in a single position, and then in your total positions. This means you decide how much is right for you when putting money in a share. Obviously, if you put too much into one share on the ASX, you will lose all your money if it disappears. But also, if you put your money into too many shares it will be hard for you to outperform the market. Usually between 6 and 12 positions is optimum.
While some people can spend years determining the right trading plan – it doesn’t need to be complicated. With these rules you are well on your way to success in ASX shares.
Learn more about investing in ASX Shares with the free course at www.asxmarketwatch.com . Dave McLachlan also has free research on the Australian Stock Market.