How to Prepare for Economic Crises By Learning How To Trade the Forex Market: A Crisis-Proof Checklist
This is our third article relating to the Coronavirus and will give you a clear idea of how to complete your crisis-proof plan. In the first article, we discussed why and how the Coronavirus impacted the markets like it did while in the second one we listed down some of the “safe haven” currencies where you can put your money in to keep it intact.
While these knowledge will help you prepare for the economic turmoil happening now or about to happen in the future, it’s really just the tip of the iceberg. So in order to fully prepare you, allow us to add the final layer on the cake– a checklist on what you should do so you can fully get ready for crises like the COVID-19 breakout.
We’ll tell you exactly what you need to learn so you can start trading the Forex Market and crisis-proof your finances.
It’s so easy to start feeling anxious when you see news such as the Philippine Stock Index has reached its lowest lows in X years. And we can’t blame you because the stock index is one of the main indicators of the health of an economy. So if you see the stock market plunge, you may have worries that inflation prices of basic goods such as food & medical items are going up, you might lose your job and so on. The enhanced community quarantine also puts the economy at risk since business operations will either stop or slow down. That will further fuel the downtrend of the Stock Index.
While these worries are definitely valid, let us assure you that it won’t spell the end of your wealth-building! Aside from your day job and stock trading, it is still possible to make money out of the most liquid financial market in the world– the Forex market.
The beauty of the Forex Market is that you can make money in both uptrends and downtrends of economies. All you have to do is learn the rules of engagement and you will be able to make money even during the whole COVID-19 outbreak.
That’s why the first thing we would like you to do is to keep a cool head and see the silver lining even through all the adversity. This is where you’ll be able to find hope.
Study the Safe Havens
As we have already discussed in the previous article, there are certain assets that are considered safe because they are known to stand strong even during economic turmoil. Just to recap what we learned during the last article, the most common safe havens are Gold, the US Dollar, the Japanese Yen, and the Swiss Franc.
Outside of currencies, other safe haven assets include government bonds and defensive stocks. Government bonds are essentially loans that you provide to the government. The “loans” will be used for government projects. These bonds have a certain maturity period wherein you are not to touch or pull out your money (ex. 5 years holding period). Once the maturity period is over, you will receive your full investment plus interest. In the case of the Philippines, we have Retail Treasury Bonds.
Other than bonds, you may also consider putting money into defensive stocks that do well during crises. These stocks come from companies that sell necessities like grocery chains, healthcare companies, and food & beverage chains.
The only problem with these two assets is that you won’t know when the government will issue RTBs so it’s hard to move your investments around these types. As for the defensive stocks, you won’t be able to short defensive stocks like you can do with currencies. So defensive stocks are usually long term investments.
That said, we will focus on safe haven currencies.
Monitor the News
When people monitor news, they often start to get scared because news would usually paint a bleak picture of what’s happening economically. But we would like you to open your news app with the mindset of getting information for your next opportunity.
Now, another important point of news is that it will tell you which safe haven people are running to during the crisis. You see, not all safe havens will do well or stay intact during crises. Investors have preferences of which safe haven they’d like to put their money in depending on the situation.
Let’s take the example of Gold. In most cases, Gold is known as a safe haven in the event that all other risk-on currencies are not doing too well. But in the past few weeks, we’ve actually seen the Spot Gold tank lower and lower at a rapid rate amid the COVID-19 breakout. Conversely, the USD has been going higher and higher. This is most likely because the USD is the most liquid currency and during most panic-prone scenarios, investors would flock to a currency that has high liquidity. This is what probably made the USD a safe haven.
Learn Charting and Technical Analysis
Charting and technical analysis is the meat essence of Forex trading because it tells you which prices you should enter your trade in. It will also give you an idea as to when a certain currency will change direction. This is one of the hardest parts of Forex trading to learn because it will require you to know how to analyze and formulate a story about what the market is doing by looking at the chart.
But if you master the art of technical analysis with good risk management, you will definitely be able to make money during the COVID-19.
Putting Everything Together…
To recap our article, we have discussed why you should not remain level-headed even though the economic situation of our country seems quite dire. We also discussed the various safe havens and how each safe haven responds differently depending on the situation and the preference of the investors.
Lastly, we’ve also mentioned how important charting and technical analysis is when it comes to making money because it will tell you whether to buy/sell a certain currency, what price to enter at, and where you can exit.
Now, technical analysis combined with solid risk management is something that is heavily taught at Learn To Trade. We aim to teach our students to be as precise as possible when it comes to trading. We will teach you proven Forex Strategies that you can use in line with your newfound knowledge on safe havens and how to use them altogether.
If you want to crisis-proof your finances today, register for our FREE introductory workshop below so you can begin your Forex Trading education.