*OspreyFX would like to state that traders should research extensively before following any information given hereby. Please read our Risk Disclosure for more information.
How (and why) Forex Trading Is Profitable In A Downward Trend
- Moving towards a bear market
- Making profits when prices fall
- Advantages of forex markets during a crisis
A significant tumble across global markets may lead to panic among investors and as a result, a snowball effect occurs. However, worrying and following the herd may be counterproductive. So, how is forex trading profitable in a downward trend? What is the best strategy to find opportunities and learn to trade falling prices? In other words, it is crucial to adjust your goals accordingly.
Shifting your focus to the long-term track of the stock market will place you in a position to observe a bear market. There are profit openings in this scenario as derivative products enable you to speculate on the market fluctuations. You can then open a position on securities without needing to own the underlying asset.
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Moving towards a bear market
As you begin trading bear markets, it’s important to look out for a downturn. Here’s how to identify it with through these signs:
Failed market rallies. An uptrend that doesn’t gain any traction and the bulls start to lose.
Economic decline. Rising unemployment, high levels of inflation and bank failures.
Rising interest rates. High-interest rates lead consumers and businesses to limit spending, leading to a decline in incomes and drops in share prices.
Defensive stocks start to outperform. It’s often seen as a sign that a period of economic growth is over because consumers are cutting back on unnecessary items.
Making money when prices fall
Investors and traders can profit from market downturns or at least maintain their holdings. Here are some of the popular ways to achieve this:
- Short-selling
- Dealing short ETFs
- Trading safe-haven assets
- Trading currencies
- Going long on defensive stocks
- Choosing high-yielding dividend shares
- Trading options
- Buying at the bottom
Advantages of forex during a crisis
Making investments during a severe global crisis requires patience and a well-thought-out strategy. Despite the downturn, markets remain open, because the key forex players are the super banks, governments, central banks, and big companies. So, as long as there are individuals or entities that are ready to buy and sell, there is a market. In this context, traders only need to think about how well their strategy relates to the end-game.
There are many advantages that are unique to forex investments, particularly:
- The 24-hour market allows you to profit round-the-clock.
- In terms of volume, the forex market is 50 times larger than the NYSE. It is the largest and most fluid market which makes it not only very appealing but also full of potential.
- This high liquidity ensures even better technical analysis tools than those available in any other markets.
- The chances of insider trading or price manipulations are very limited, because no single player can control a market that is worth more than $2 trillion.
To sum it up, as a trader, you have an opportunity to make a profit and start building a long-term strategy. Even veteran traders may find themselves in unchartered territory as this unusual bear market develops further and we face the most rapid slowdown in history. Nonetheless, given its record speed so far, it wouldn’t be surprising if the recovery is equally rapid. The best approach is to use history, data, and numbers as a guide.