Panic Selling, the Opportunity
Published: July 28, 2020 by Andrew
Panic Selling is one of the worst nightmares of those who trade without having studied trading and the most risky moment. We can say that during the panic selling many novice traders (and even many experts) have completely ruined themselves.
But not all of them. Those who know how to trade even look forward to panic selling to make money. And maybe he also complains that they don’t happen often.
In this guide we explain the meaning of panic selling and, above all, how to transform this nightmare into a great profit opportunity, perhaps the largest that exists for those who trade. Indeed, there are actually 2 opportunities. But let’s go in order.
What is Panic Selling
It is a phenomenon that occurs when investors are frightened by some catastrophic event and start selling irrationally, panicking.
The fact that everyone (or almost all the smart ones are always there) sells the prices down even more: the securities become a piece of burning coal to get rid of at any price.
Panic sellers think that the title they are operating is worth 0 (even if it isn’t) and therefore is satisfied with any amount just to get rid of it.
This results in a disastrous slump in stock prices. Often the value of stocks drops much, much more than it would have been rational to expect. This is the point, we will return soon.
Investors who sell during a panic sell suffer very heavy losses (but there are also those who earn there).
Online Trading and Psychology
Panic indicates a deeply human emotion. A deep, irrational fear that pushes for immediate action.
It is probably a state of mind that has proved invaluable for our Paleolithic ancestors who had to constantly face great dangers: to panic and escape legs raised by a saber-toothed tiger chasing you is all in all a good strategy!
For those who trade online, however, panic is by no means a good strategy, on the contrary it always involves losses. Who sells during a panic selling always sells at a decidedly lower price than the actual value of the security.
The problem is always in managing emotions. Panicking and selling without reasoning is a bad thing. But also to get caught up in greed and buy a title because everyone else is buying it and the price goes up is a mistake.
Those who want to trade online must learn to manage emotions, there is little to do. The fact that computers have no emotions is one of the reasons for the success of automated trading.
Trading psychology is often much more important than any technique or strategy. Those who are able to dominate fear are also able to make the most of the opportunities that online trading offers. And these opportunities are very important during a panic selling.
Playing on the stock market is not only technical, which obviously has its importance, but also emotions.
Make Money with Panic Selling
Well yes, we have already mentioned it: what for many is a moment of panic and very heavy losses for others is a tempting opportunity to make substantial profits.
Indeed, to be precise, the opportunity is double and it is not difficult to seize it. Let’s see the two opportunities in detail.
Panic Selling and Short Selling
During a panic selling, prices fall and it is the right opportunity to sell short and go without fail.
Short selling is a speculative operation that generates a profit when the value of a financial security falls.
Someone may say that during a panic selling the supervisory authorities prohibit short selling and it is true.
Although this prohibition is considered by many experts to be even counterproductive because it makes the market less efficient, the reality is this: during the big stock market crashes the authorities often prohibit short selling.
Is it a problem? Absolutely not for those who have operate with CFDs (contracts for difference).
A CFD is a financial contract whose price equals that of a listed security. CFDs are OTC contracts, managed by a “market maker” platform, which can be bought or sold.
Buying a CFD makes a profit when the value of the underlying rises, short selling a CFD makes a profit when the value of the underlying falls. The prohibitions of regulatory bodies and other supervisory authorities do not apply to CFDs.
Precisely for this reason CFDs are a valuable tool for those who want to take advantage of panic selling. To operate with CFDs you must use the services of a trading platform.
Read more: Short Selling
Best CFD broker Platforms
We have carefully selected the best CFD trading platforms by choosing only the truly safe and obviously with no commissions:
Min. Deposit: 50€
Min. Deposit: 100€
Min. Deposit: 50€
Min. Deposit: 250€
Min. Deposit: 100€
Min. Deposit: 250€
eToro is truly one of the best CFD platforms currently available. It is a very secure, free and commission-free platform. Above all, eToro is the only platform that allows you to copy, in a completely automatic way, what the best traders in the world do.
How? Thanks to the innovative Copytrading system it is possible to search for traders who in the past have obtained the highest profits. These traders can be chosen by the user and the patented eToro software will automatically replicate all their operations (in real time).
The advantage, especially for a beginner, is double: he can immediately get the same results as a trader professional and he can also, if he wants, learn to trade observing the best.You can sign up for free on eToro by clicking here
Learn more: eToro Review
ForexTB is one of the best options for those who want to start trading without mistakes. The platform is simple, very intuitive. There are no commissions or costs to pay.
All members are assisted on the phone by a real trading expert who provides precise indications and advices.
Those who want to learn more, can download a truly recommended guide to trading. It is truly worth investigating this aspect.
Those who lose money with trading may not even know that when the price of a security falls, you can make money by selling it short.
That’s why studying trading is essential before starting to trade. The ForexTB trading book has had extraordinary success (hundreds of thousands of downloads in a few months) because it is:
- Free, while other courses have a high cost
- Complete: it really explains everything you need to know to be successful with trading
- Easy to understand because it does not use technical terms and explains all the concepts well
- Oriented to practice, that is, to what traders are really interested in
The advantages of ForexTB are not yet finished: for example, it is possible to use the platform in demo mode to accumulate valuable experience before starting to trade with real money.You can sign up for free on ForexTB by clicking here
Learn more: ForexTB review
Iq Option is a CFD platform particularly appreciated by beginners because it allows you to start with a really minimal starting capital, just 10 euros. The other platforms still require small capital (250 euros) but Iq Option is truly the most accessible ever.
Iq Option also meets the needs of beginners in online trading with a large teaching area on its website, very useful for those who really start from scratch.
Iq Option also offers a free, unlimited and unconstrained demo.You can subscribe for free to Iq Option by clicking here
Learn more: Iq Option review
When everyone sells, it’s time to buy
In addition to short selling, there is also another great opportunity to make profits when the markets go down: buy stocks.
During a panic selling the prices drop a lot, much more than is rational (assuming that a real catastrophic event has occurred). It is the time to buy.
First, typically in the session following the one in which panic selling occurred, the markets always rebound (technical rebound). So maybe you can make a + 5% in a day (but also a 10% if the markets have collapsed a lot). Among other things, with CFDs you can also use leverage to obtain even higher profits.
If this is not enough, panic selling is the right opportunity to build a good stock portfolio for the long term.
Many professional investors keep an eye on the most interesting companies and wait for the price drop to buy. Obviously the need to build a portfolio for the long term arises only if you have really high capital to invest. In this case it is advisable to proceed to buy shares directly, without using CFDs.
For those with small capital, however, the choice of obtaining a return with CFDs from any market variation is preferable. After all, 250 is usually enough to open an account on a CFD trading platform.
Panic Selling Coronavirus
One of the textbook examples of Panic Selling (and the opportunities it entails) is the Coronavirus crisis.
When it became evident that the new virus would bring world economies to their knees, the stock exchanges literally collapsed, with losses that had never been seen.
Then it became clear, slowly, that the world would not end. Some sectors would have lost, it is true, but some companies would have even gained.
And what happened? That the stock exchanges went up, even before a cure or vaccine for Coronavirus was found.
On the contrary, the indexes have marked peaks: those who have traded Amazon shares, for example, have achieved incredible satisfactions. And the same can be said of those who worked on pharmaceutical stocks.
Smart investors gained during the panic selling of Coronavirus by selling short and then made other profits by buying when the indices started to grow again.
Panic selling is a phenomenon that occurs on financial markets when investors sell everything out of unjustified fear. Selling when markets are collapsing always involves heavy losses.
During a panic selling, however, there are two great opportunities to obtain profits: the short sale that allows you to earn just when the value of a security falls and the purchase of securities at a discounted price (usually a day of panic selling is always followed from a technical rebound).
It is a generalized panic situation that pushes investors to sell shares at an excessively low price.
Because it is possible to buy assets at a discount and / or earn with short selling.
Yes, but those who use CFDs are not affected by these prohibitions (one more reason to trade with CFDs).
One solution is to copy the best traders in the world with eToro (automatically).