Learn how to trade stocks in a recession with three simple investing tips. Throughout this stock trading guide, we’re going to teach you where to put money during a recession. If you want to survive the coronavirus stock market crash stay tuned for our best stock trading strategy in recession.
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While the coronavirus stock market crash is reminiscent of the 1929 crash and the Great Depression, this represents an opportunity to buy cheap stocks. When a recession hits the market, most stocks will suffer no matter how strong fundamentals they have.
However, that’s good news.
When the stock market crashes, stock value goes down and when stock prices go down, that’s the best time to buy stocks cheaper. So, it’s totally possible to still make money in a recession.
Throughout this trading guide, you're going to learn about the best stock investing strategy during a recession.
But, first, let’s start with the definition of a recession.
What is a Stock Market Recession?
In technical terms, a stock market recession is a period of a massive slowdown of the GDP growth rate. In macroeconomics, a technical recession happens when the GDP growth rate is negative for at least two consecutive quarters or 6 months.
We can also define a recession as a contraction in output employments, investments, and confidence.
Now, you might be wondering:
What causes an economic recession?
Several factors can cause a recession, including:
- Domestic factors (monetary and fiscal policies, a rise in taxation, big fall in different asset classes)
- Or external factors
Our team of experts will lay down some recession-proof stocks to buy.
These recession-resilient stocks can outperform the market.
Where to put Money During a Recession?
The foundation of making money when the stock market crashes or in any other type of investing is to study the past.
Here is a stock trading tip:
Compare which stocks have performed well during previous recessions.
For this exercise, we’re going to have a look at the stocks that soared during the financial crisis of 2008.
During the subprime mortgage crisis of 2008, the US stock market lost almost 40% of its value. But even in those dire times, where the majority of stocks plunged, there were some healthy stocks that survived the crash.
Given the coronavirus stock market crash, we’re going to have a look at 5 recession-proof stocks that can survive this bear market.
#1 Recession-proof Stocks: Discount Store Industry
The first way you can make money during a recession is to invest in discount stores stocks.
These types of businesses do well during a recession. The retail discount industry will typically see a boost in sales, which typically means bigger profits for the companies, and subsequently these stocks can beat all other S&P 500 stocks.
Here is a list of retail stocks to keep an eye on during the 2020 recession:
- Dollar General (NYSE: DG) – during the 2008 crash DG rose more than 60% and since the middle of March 2020, it’s up the stock is up more than 38%.
- Walmart (NYSE: WMT) – since the COVID – 19 outbreak, Walmart stock is up more than 19% from its March’s low.
- Dollar Tree (NYSE: DLTR) – With a gain of over 60% return in 2008, Dollar Tree is another recession-proof stock that can withstand today’s coronavirus bear market.
Other stocks that will survive the coronavirus crash are the biotech and pharmaceutical stocks.
#2 Recession-proof Stocks: Health Care Industry
The healthcare-related companies have performed very well during the 2008 recession.
Biotech company Amgen (NYSE: AMGN) was among the best-performing stocks in 2008, gaining as much as 24.3% by the end of that year. During the COVID-19 stock market crash, Amgen has gained roughly 24% since its March low.
Here is the next idea where to put money during a recession.
#3 Recession-proof Stocks: Delivery Services Industry
With over 3 billion of the global population in lockdown due to coronavirus quarantine, the home delivery services industry has become an essential component of our society.
The biggest courier companies in the USA are UPS Inc. closely followed by FedEx Corp.
When we can learn something from the stock market history, it’s best to pay attention.
Stock investors looking to pick healthy stocks can start first by including the above-mentioned names in their portfolios.
Let’s learn some smart investing strategies during a recession.
How to Trade Stock In a Recession?
A study has been conducted to assess the past six recessions. This study revealed that the timing of the investment is crucial to profit. Investing in the DOW at the right time can yield exponential results once the market returns. The issue comes down to timing.
Now, you might be wondering…
“How you can profit from a recession?”
The straightforward method to trade stock in a recession is by short selling.
You can make money when stock prices go down by short selling. Actually, stock day traders can make money both ways, when the stock price goes down and when the stock price goes up.
Finding good stocks to hold and make profits during a recession is pretty hard.
Alternatively, buying dividend stocks can become another profitable method to invest during a recession.
Dividend stocks can provide a good source of passive income during times of a recession.
You can also use Google Trends for stock picking.
More on this topic you can learn with our guide here: Google Trends Trading Strategies – How to Beat the Crowds.
However, by far the best stock trading strategy in a recession is day trading.
In a typical recession, stock investors will experience more volatility, which is the perfect paradise for day traders. Stock day traders will continue to see volatility as the uncertainty around the coronavirus persists.
One major characteristic of a bear market is high volatility compared to bull stock markets.
And, the 2020 bear market holds the record as the fastest bear market in history. Bull and bear market volatility look very different. So, as you may imagine, stock volatility is through the roof during the 2020 recession.
In light of this new revelation, we’re going to teach day traders how to trade stock in a recession.
What is the Best Stock Trading Strategy in a Recession?
Throughout this section, you’ll learn a foolproof stock day trading strategy to use during a recession.
The stock market hasn’t seen this level of volatility since the 1929 crash.
Due to this coronavirus-induced volatility, on an intraday level, the price will experience big up and downswings in the stock price. So, in the current stock market environment, you can learn to profit when stock prices go down as well as up.
One of the most common mistakes people make when trading stocks in a recession is they only learn how to make money when the markets go down. This is a mistake because bear markets are prone to swift and killer short-covering rallies that can make you broke.
We’re going to teach you how to make money during a recession with a day trading strategy inspired by Trading Guru Larry Williams.
Day Trading with the Best Stock Trading Strategy in a Recession
Day trading during a recession can be the fastest way to grow your account.
With day trading you can trade both ways:
You can take advantage of both the bearish trend as well as from the sharp rallies.
Our stock day trading method is based on the same method that Larry Williams used to generate more than $1 million in profits in the world futures championship Robbins World Cup.
But, there is a twist.
Our team of experts took Larry’s Smash day reversal pattern and twisted the rules to fit our recession strategy.
Now, you may be asking yourself:
What’s a Smash day reversal pattern?
According to Larry Williams, a Smash bar is a bar of increased volatility with long wicks. The Smash bar trading pattern indicates a potential reversal of the preceding impulsive movement.
Let me explain…
If on the intraday level, the stock price starts all of a sudden to experience a high level of volatility, this should leave behind candle bars with long wicks.
See the stock chart below:
Now, it’s important to make the difference between the Smash bar trading setup and the typical Pin Bar chart setup. While these two stock chart patterns might look similar, the pin bar has a small body candle, while the Smash bar has a typical larger body.
You can learn more about how to trade with the Pin Bar pattern here: Price Action Pin Bar Trading Strategy.
The stock reversal pattern is completed once the next candle breaks above the smash candle, which will subsequently trigger a buy signal.
See the Amazon stock chart below:
Note* obviously the protective stop loss can be placed at the other end of the Smash bar.
This stock chart pattern works because the increased volatility will attract more traders to take an interest in the stock. However, if the next bars go in the opposite direction it will signal a reversal in the current stock price direction. Subsequently, this will lead to further liquidation along the road and exacerbate the stock price reversal.
Now, the coronavirus crisis has unleashed unprecedented levels of stock volatility.
This is good news because it means the Smash bar pattern will tend to reoccur more often.
You can buy and sell stock in a recession due to the elevated stock volatility.
We have learned how to buy stocks, but what about how to sell stocks during a recession?
We use the same principles but in reverse.
See the Google stock chart below:
There is also a slight variation of the Smash bar reversal pattern that we can use.
Larry Williams calls it a hidden Smash bar.
Let me explain it to you:
When a highly volatile bar emerges out of the blue that can be a signal of reversal. This bar must have its closing price in the lower third of the stock price range. And, it must be bigger than the bars close to its proximity.
Note* this time we don’t count on the long wicks.
There is no better way than to show you on a price chart how to trade stocks in a recession.
See the stock chart below:
Note* this day trading pattern works best when we trade it in a context of an established intraday trend as a continuation pattern.
Final Words – Best Stock Trading Strategy in a Recession
Use our best stock trading strategy in a recession if you want your account to go up even when the market crashes. Learning how to trade stocks in a recession can help you survive while keeping you risk-adjusted. The average recessions last 18 months, so it’s important to find different methods to protect yourself.
Alternatively, you can also learn where to put money during a recession the safe way. Stock investors can put their money in high –quality stocks (recession-proof stocks) like:
- Consumer staple stocks
- Discount store stocks
- Pharmaceutical stocks
- Delivery service stocks or food delivery stocks
If you’re more of a stock risk-taker, the best way to make money during a recession is by day trading the stock market. Larry Williams’ Smash day pattern is a simple but very effective way to trade stocks in a recession.
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