US Stock Market Crash That's Being Ignored By Most Traders

(And What Smart Investors Are doing Now) "This time it's different," is US stock trading app probably the most used phrase in the investing and trading world when it comes to predicting US stock market crashes. Most people predicting crashes go right back to being 'bullish' in the following week or month once those forecasts haven't materialized. Even in very calm and steady market periods for the US markets, smarter and seasoned traders are aware that the market can turn sharply at any moment, regardless of the current hype and prevailing sentiment, that other investors are fixated on.

Many people waiting for 'news' to break or for 'gurus' on social media to say "sell now" will be a long way behind as price can move much further before the crowd finally realizes. When markets are moving steadily higher, investors get comfortable, take on a bit more risk and any dips are seen as a buying opportunity. They start believing this steady climb will never end. Then suddenly it reverses and the market suddenly seems unrecognizable as investors who just wanted to buy the dips quickly switch to thinking they were right to believe in an impending sell off in the first place. It doesn't matter as much WHEN the crash occurs-as no one knows this. Many traders do focus more on WHAT would they do IF there was a market crash like 10%, 15% or even 20%. Preparing their game plans rather than anticipating any exact market turn-less exciting than making wild prediction of crashes-but perhaps a more effective strategy. You can tell you've experienced a few hard markets when risk management looks as appealing as an old love song; it's simple but highly effective. Take one US based trader I know, he has simple written down plan in place: if a market like the Dow gets below a certain point size down his positions ifvolatility rises, he reduces how many trades he takes. He says most of his less informed friends mock him over how boring and conservative his approach is. Comparing this to what those friends do in panic when the market moves quickly makes all the difference! Sitting on the side lines is also a conscious strategy; not actively trading with a higher cash position can enable opportunistic buying or reduce the impact on your portfolios if a sharp sell-off occurs. Investing for the long haul means buying lower may be good-short term traders, however care more about price trends and staying liquid to benefit during rapid changes to value. Combining the two can lead to costly mistakes and confusion. It seems everyone forgets how much of a role psychology plays in this whole process. Fear spreads far more readily than does optimism. 'Brave traders' who were buying everything one week are often too fearful to even touch same stocks if the market moves back to similar price levels the next week. There is not much changed-except their emotions and the market moves up after that. You also tend to over look how much concentration risk is now taking place-usually if there has been a steady bull market, your portfolio is loaded up with your tech and other favourite stocks. When that big change is finally due, this concentration risk becomes far too obvious and your portfolios plunge a little more than a market that is less concentrated. The market will also react to what economic signals it receives-interest rate, consumer and business confidence, labour data etc., however, seldom one piece of data will signal such a massive decline. However if several pieces of significant economic data arrive close to each other and are negative-the psychology will shift rapidly. There is no sign that the US stock market is about to collapse anytime soon though, with the level of complexity that can be involved when analysing such markets. Many smarter traders however focus on a different strategy. They may well not know when, but what to do when and if such a event happens to us, as well as trying to protect your hard earned money by keeping to size guidelines and exit points etc. And leaving the hype to others who want to speculate on an eventual crash.