When markets turn downward for a prolonged period of time, it is easy to believe that a bear market is in the works. That is the impression that many traders and investors have right now thanks to what is happening within the U.S. economy. The threat of a bear market is often enough to drive prices down even further as investor unload positions that will be weighing them down over the coming months as the market struggles to right itself.
However, anyone with experience can tell you that bear markets are only really identifiable in hindsight. According to the generally agreed upon definition, a bear market occurs when general indices have dropped by 20 percent or more and stay that way for at least two months. That is considered the entry point to the bear market. And regardless of everything that has happened in the last several weeks, the U.S. economy is not quite to this point yet.
Over the last year, the S&P 500 topped out with a closing price of 2,115. This point was achieved in February of 2015. A 20 percent drop from this point would mean that the index would need to go down to a point under 1,700, and we are still a long way from this. The market is in a correction phase right now, and there’s no disputing that. But it is still far too early to be calling this a bear market, and that means that there are still many opportunities for traders that want to take positions on the long side of things. As the price of the S&P goes up over 1,900 again, there is plenty of room to still be optimistic.
For short term traders, especially those that day trade in the stock market, with binary options, or in the Forex market, the recommended course of action is to stay alert. Market conditions have proven volatile over the last two weeks, with volume being higher than normal as people attempt to stay out of trouble. But this high volatility has created a lot of unpredictability for most people. For others, particularly binary options traders and Forex traders that focus on the shortest of trades, opportunities have been created. As the stock market rollercoaster impacts the U.S. dollar, it is only inevitable that currencies will be dragged along for the ride. This will create areas for profits as the volatility can be tightly managed in short term trades as long as they are monitored closely. The short expiries of binary options, and the pinpoint accuracy of many Forex trading software programs lends itself well to this end, allowing traders to find opportunity even when the market is at its unpredictable moments. Like right now.
How does this work? For one, the dollar often interacts inversely with the S&P, but in this instance, because the rest of the world is also being impacted by market volatility and unpredictability, this relationship is moot for now. But, because there is still a pull, and because trader psychology is still at play, the combination of what’s going on with the stock market and the technical indicators that make Forex trading so mechanically sound can be a good combination. Breaking charts down into small timeframes so that these things can be accurately watched all while your own technical analysis is running on charts will help you to unfold trading opportunities in real time. Just make sure you have a solid strategy behind this.
The volatility of the stock market doesn’t need to lead to losses for you. Just know that there are other methods of creating profit, even when things seem completely unpredictable.