The Dow Dropped … Now What?
Now that the dow dropped … will your account fall? That’s the big question in the trading community this week.
On Monday, May 13, the Dow Jones Industrial Average dropped a heart-stopping 600 points in a single day.
The catalyst for the huge point plummet? An announcement that China will increase tariffs on U.S. goods — the latest development in the escalating trade war between the two countries.
The whole affair is puzzling many traders: Was it a momentary panic … or are we on the verge of a financial crisis?
While we can’t know exactly how it will all shake out, ultimately the drop was a short-term event.
Feeling shaky and nervous in the wake? Before you do anything rash, let’s discuss the situation and how you, trader, can weather whatever storm might hit next.
This Is (Trade) War
This Monday, the trade war between the U.S. and China intensified, as China decided to raise tariffs on nearly $60 billion of U.S. goods starting June 1. The news acted as a massive negative catalyst for stocks across the board.
Not only did the Dow dip over 600 points, but the S&P 500 and Nasdaq also reported some record lows and losses…
The market’s reaction? Utter and complete panic.
As they watched stock prices dwindle, both professional and individual investors were extremely shaken. Traders were uncertain if this was a one-time event or a sign of things to come.
The Good News
Fact: The stock market hates uncertainty.
With the recent announcement of big tariff increases, the markets are undoubtedly shaky. Unfortunately, fear can quickly turn into panic, as we saw the other day. This can lead to periods of intense sell-offs.
And that, unfortunately, can compound the panic and lead to even more sell-offs.
Is all hope lost for the future of the markets and your trading career? Not likely. The good news is that these periods of panic — while intense — are usually short lived.
An Opportunity for Traders
More good news: A few days after the big downturn, the market enjoyed some upward bounces.
Also, when you take a step back and look at the state of the economy, we’ve got some good things happening. Employment is at record highs, wages are rising, and in many areas construction is active and ongoing — all signs of a healthy economy.
That’s all to say that it’s possible the recent market downturns could be temporary. And that means that the recent panic could actually be a fantastic opportunity for dip buying.
For example, right now soybeans are at multi-year lows. China is one of the biggest importers of soybeans, and when the current issues subside, it’s possible that prices might skyrocket again.
No, I’m not saying you should buy every soybean-related stock you possibly can. This is just one example of a sector that traders can look at right now for potential opportunities.
Get Smart
Don’t waste your time and energy panicking about the current state of the market. Instead, get smart about seeking out opportunities.
When the hard data says one thing and the collective trading community’s emotions say another, there are opportunities to trade.
No, I’m not saying you should blindly trade — ever.
But consider the data and think about what really matters. The economy is overall doing pretty well … So it’s worth considering how to take advantage of these uncertain times rather than running under a rock and hiding.
The Bottom Line
While a huge Dow drop like we recently experienced is undoubtedly scary…
It doesn’t mean the trading world is bound to crash and burn.
But it does mean that traders must adapt.
More than ever, it’s crucial to be thorough in your research before executing trades during uncertain times like this. Use a stock screener like StocksToTrade to get the most up-to-date info: technical indicators, stock charts, news catalysts, and more.
Then, consider not only the stock in question but the state of the market when evaluating whether a trade is worth pursuing.
But don’t be scared to get out there! Remember to check your emotions — don’t let them rule your trades. There are always opportunities for traders if you know where to look and trade smart.
