Learning to trade a stock market crash

A stock market crash is a fast, substantial price drop in a large number of shares on a stock market. Volatile by definition these events provide ample opportunity for savvy traders to profit. But how can you make the most out of a stock market crash? One of the most obvious ways you can make money is by going short on stocks and indices. However, it can be hard to predict when the crash will happen and even harder to predict how long it will actually last. Some traders prefer for prices to level out and go long on the market’s recovery. Certain forex pairs could also see plenty of price action. Central banks will sometimes make preemptive strikes against recession by cutting interest rates which may cause their currencies to devalue compared to others.

Now, traditional safe havens such as government bonds and gold are likely to rise in times of uncertainty, creating opportunities to go long if you can get in before the masses. And futures markets such as the VIX track implied volatility so they may rise in response to the anxiety and skepticism that often surrounds a stock market crash. Whichever market you choose to trade, it’s likely to be highly volatile, so consider using a stop to minimize your losses in case the market moves against you. A guaranteed stop will close the trade at your chosen level even if there are liquidity problems in the underlying market.