How to make money in a downward market

After a volatile Tuesday, the U. Worries over China continue to plague the global economy and will likely keep the stock market swinging for a while.

That presents a golden opportunity for average investors to make decent money by applying a few tactics, especially through low-cost e-trading platforms like ETrade, Scottrade, or TD Ameritrade. Play the time-zone game. As more sophisticated investors know, Asian and European markets are usually good barometers for how U.

By monitoring the performance of the Shanghai Composite Index in China, the Nikkei in Japan, the FTSE in the U.

How to Make Money in a Down Market

Think of it as your own crystal ball and be grateful that the Asian and European markets are on different time zones than the U. This trick works particularly well right now because of the economic turmoil in China. European markets have the benefit of observing movements in the Asian markets during the night and parsing that information to decide how to react. By the time U. Invest on market open and close.

Market open and close are magical zones when stocks trend up or down dramatically, allowing you to execute a killer trade. This is because opening and closing prices are usually driven by pure investor sentiment whereas intra-day trading responds to many other factors, including macroeconomic and company developments. On Black Monday, for example, a strong stock like Google goog opened sharply lower, dropping by 6.

Prices fluctuated throughout the day and even dipped briefly below the opening price, but for the most part climbed back up. Similarly, closing time tends to cause a sudden uptick in stock prices, especially during a bear market, as much of the selling has already occurred during the day and buyers rush to pick up shares, fearing that the market could go back up the next morning.

After-market trading, which some electronic trading platforms offer, can also be a good bet. Use Pre-Market prices as a guide to the day. Investing early can be profitable but only if you know which direction the rest of the day is likely to go.

A rule of thumb is to look at pre-market prices, which outlets like Yahoo Finance provide, shortly before the open. If Pre-Market prices trend down in lockstep with global markets, chances are good that U. There could be domestic factors affecting the numbers and you may have no idea whether opening prices are low or high. When in doubt, hold off on the trade. The key to a profitable trade is volatility. The more volatile a stock, the higher the potential profits or losses.

Option Strategies For A Down Market

From an investment standpoint, you should watch the trading ranges for various companies and bet on stocks that swing a lot in order to maximize your gain. Use the Limit feature to manage risk. This can be very useful for managing risk in a volatile market. If you buy too soon, you could actually wind up taking a loss if the market goes down a lot more, or at the very least decrease your profits from the trade.

The Limit feature buys you valuable time to assess which way the market is going in the next few hours while also protecting your opportunity to buy at a low price.

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If the price sinks further and you expect it to keep going, then you can simply change your order and lower your Limit price before your trade executes. The last thing you want to do is buy a stock that you think is trading below its value, only to see its price fall even further. The average investor may lack the analytical tools or understanding of finance to correctly predict market direction, but luckily, analysts and news outlets can do that for you.

The key is to resist the temptation to react to a single news story about the market or an individual stock.

A good example of this can be found in the stock price fluctuations for Apple aapl over the past 10 days. Days later, CEO Tim Cook assured investors that the impact from the troubled Chinese economy would be minimal, and the share price shot back up. But if your aim is some quick profits, then it matters a great deal. All investing is inherently risky and notwithstanding the tricks outlined above, all investors should follow the same maxim that large institutional investors adhere to, which is diversification.

You Can Make Money in Up or Down Markets - The Daily Reckoning

That may limit your profits but it will also help to mitigate the risk if your calculations turn out to be dangerously wrong. No one, after all, can truly predict the arcane movements of the stock market. Kumar is a tech and business commentator. He has worked in technology, media, and telecom investment banking. He does not own any shares of the companies mentioned in this article. Traders in the NASDAQ pit at the Chicago Mercantile Exchange shout and signal their trades near the close of trading on April 24, in Chicago.

The Nasdaq fell sharply after reports that the Justice Department was leaning toward asking a federal judge to break up Microsoft Corp. Photograph by Ted S. Data Treasury Report Recommends Keeping Data From Consumers.

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