Panic on the Stock Market. Is it Time for a Run?

For the past few days, blood has been pouring on the stock market. Most stocks are falling by several or more percent. The panic on the stock market continues. Is it time to flee the stock market?

People in such situations are always surprised. They don’t know what to do. However, each such fall raises questions: should they go in? Because, after all, it can always fall more. But let’s try another question: better to buy cheap or expensive?

Panic on the stock market is an opportunity?

The thing about the stock market is that we never hit a low perfectly (and if we succeeded occasionally, it’s hard to repeat it). That’s why we look for discounts like this. If the price of a stock has fallen by 15-20%, but we know that the condition of the company is good, why not buy such shares? The thing with stocks is that when there’s a panic, everything usually falls. Often for no reason at all. It falls because the other stocks also fall.

This also often happens when the market is overheated and simply has to correct. It hasn’t been said for a long time that bulls climb stairs and bears jump from windows. What does this mean? Well, it means that increases are often slow and long-term. In contrast, declines are dynamic and definitely shorter than increases.

Read also: How to deal with losses on the stock market?

Take a look at any chart (e.g., indexes) to see how long the falls last, and how long the rises last.

Another thing, falls are the natural course of things. An overheated market needs to recover, and the more impatient ones want to realize a profit. On the other hand, experienced players often take advantage of such situations to add more stocks to their portfolio balance. Stocks that are at a lower price.

Playing on emotions

Playing the stock market is playing on emotions. Nothing is certain there. It is worth watching the behavior of the crowd. Here nothing has changed over the century. We behave as we did a hundred years ago.

I would like to emphasize one important thing: I am not urging anyone to hold a position at a huge loss, because that is not the point here. It all depends on what strategy you decide to follow. However, I know from experience that we usually (especially in trading) open a position too high in relation to the capital we have. As a result, one bigger move can cause us to take losses we are not comfortable with. And we open these large positions with the hope of making a bigger profit.

We play too aggresively

Therefore, my opinion is that we often play too aggressively and often do not allow for the thought that the market may go in the opposite direction from what we expected. Sudden falls often take us by surprise and then we don’t know what to do with the loss. Whether to accept it or wait for a rebound, which we don’t know when it will come.

The solution will not be found on this blog, because the answer is within ourselves. It is up to us to do our homework and find out what drives us when we open positions, whether we have taken into account various scenarios and whether we are following the plan.

Financial markets are a great place to learn about ourselves

I always emphasize that financial markets are a great place to learn about ourselves. We can learn about our behavior and reactions, especially in stressful and unexpected situations like in the current situation, when we observe a panic on the stock market.

Another thing: every loss in the stock market shapes our character. We are mentally stronger and often learn some lessons from our mistakes. The stock market is a place we must feel respect for. However, this is a game in which we compete primarily with ourselves.

Read also: Exiting a position is more important?

If we can understand what we are doing, why and how we will behave in a certain situation, it will be the first step to success. I’m not saying that we will suddenly start winning in the stock market, but it will also help us in everyday life.