Hello gentlemen traders! In times of crisis, the best time to buy shares is because prices fall and you can buy shares of the world’s leading companies at low prices. But how do you find the bottom of the market? It seems to you that the bottom has already come, and you buy shares, when suddenly you see that the market continues to fall. What to do in this case? Our strategy for trading stocks during the Double Down crisis will help you with this. It is universal and is suitable not only for stocks, but also for cryptocurrencies , gold, oil and other commodities. In this article, you will learn how to trade stocks using the Double Down strategy, when you can double trades on falling stocks during the 2020 crisis, and when you should not do this, and where it is profitable and safe to trade stocks.
See also our rating of Forex brokers .
What is Double Down?
Содержание статьи:
The Double Down trading strategy will help traders recover from losing trades. You can become a profitable trader if you learn new tactics for dealing with losses.
If you are new to the stock market and you see your stock going lower and lower, what should you do? What should be your trading strategy in this negative situation? Should you stay in the market or should you close a losing trade?
Usually, stock traders who suffer losses on a trade have been limited to two strategies for trading stocks:
- Sell and take a loss.
- Hold on and hope for the best.
However, there is a third strategy that can help you recover your losses, which is the Double Down stock trading strategy.
The Double Down strategy is built around an existing losing position by doubling your trade when the stock price falls. Basically, doubling means that you buy the stock at a lower price, improving the average trade entry price.
For example, if you bought 100 Tesla shares and then the Tesla share price fell, you would double by buying another 100 Tesla shares at a lower price.
(click on the screenshot to enlarge)
The Double Down strategy in the stock market may look similar to the Martingale trading strategy . However, the Martingale strategy involves doubling the trade size after each loss. This trading method significantly increases your risk compared to the Double Down strategy.
The additional purchase of shares at a lower price reduces the overall entry price of a trade, and this can reduce the risk that the trade will be unprofitable.
You need to use as much capital as possible so that when the market falls, you can additionally buy stocks at low prices. This will allow you to improve the effectiveness of your stock trading strategy during a crisis.
Successfully investing in the stock market depends not only on your trading skills, but also on what you invest your money in. Good companies will always grow after the crisis is over, so investing in new market lows will make even more money in the future.
See also who are ECN brokers and what are their advantages over DC.
How does the Double Down stock trading strategy work?
To explain how the Double Down strategy works, let’s look at a specific example.
Suppose we buy 100 Amazon shares at $ 1,800 and the market continues to go down $ 100 against us. For $ 1,700, we buy another 100 Amazon shares, so we double our position.
As a result, two things happened:
- We have doubled our risk from 100 shares to 200 shares.
- But we also lowered the breakeven entry point from $ 1,800 to $ 1,750.
(click on the screenshot to enlarge)
This means that we have lowered the average trade entry price, but at the same time we have also doubled our risk. We are doubling down because we hope that this company’s stock will do well in the future. Therefore, the success of this strategy comes down to a competent choice of stocks.
In the short term, due to good volatility, the price can constantly move up and down. This is a great opportunity to speculate. If you have a large enough deposit, the Double Down trading strategy can keep you in the game for a very long time, but with one condition.
To trade, you only need fundamental stocks that have the potential for growth. You can use the CAN SLIM stock selection strategy described on our website or any other strategy.
But sometimes doubling stocks can be bad trading practice. Below we will consider a scenario when you should not double your position in the market.
See also what scalping brokers are .
When is it impossible to double a trade?
The main argument against doubling stocks is that markets never move in one direction. If you choose the wrong stock, doubling can lead to large losses in your trading account.
You should not blindly double the trade. You need to be as confident as possible that the company will recover from the current crisis. Therefore, choose reliable companies from the S & P500 and Dow Jones indices . Be sure to watch how they behaved after previous crises.
If you see that the crisis has passed and the market is growing, and your company’s shares continue to fall, then in this situation the best way to get rid of losses is to close the deal at the current price.
Thus, you cannot double up if you do not know how the company will behave during the crisis. Owning stocks without proper market research is dangerous when the stock price falls because you are left in the dark, not knowing what to do.
Now let’s look at how to determine the time when you can double your position in the market.
When to double a trade using the Double Down strategy?
If you are doubling only to lower your entry price because you got the wrong entry point on your first trade, this is the wrong approach. However, if you have planned a trade ahead of time and have established a potential price zone from where you expect the stock price to catch up, this is a very smart trading strategy.
If you do not know how to choose the right time to enter a trade, you can split your order into several parts. For example, instead of 100 shares, buy 50, and then buy more. With this approach, you limit your risk and control your losses.
Second, you have to ask yourself why did the stock fall? If this is a simple market correction and the fundamentals have not been canceled out, you can double your position. Once you understand what drove the stock price down and make sure the fundamentals are still looking good, then doubling may be the right decision.
Where to Trade Stocks During the 2020 Crisis?
Trading the stock market requires a lot of experience and capital. We recommend that you start your acquaintance with the stock market through a Forex broker . In addition to trading currency pairs, Forex brokers offer such instruments as CFD contracts for stocks, bonds, cryptocurrencies, oil and other commodities. In simple words, a CFD contract is a contract for the difference in prices, that is, you do not own the asset when you buy it, but you earn on a change in the rate, getting the following advantages in trading:
- The ability to both buy and sell shares, that is, you can short the market without having stocks available;
- Purchase of shares by fractional lot;
- Receiving dvidends;
- Low commissions;
- Minimum initial deposit (we recommend starting trading in stocks from $ 1000 and above).
See also what CFD brokers are .
conclusions
Thus, to be a successful stock market trader, you must ignore your emotions and stick to the Double Down stock trading strategy. The Double Down trading strategy can be used in situations where you own stocks that were bought at a price higher than the market price and are holding a losing position. This strategy can also be used when you just want to break even and don’t care about making a profit. This strategy works great during the crisis that we can see now in the stock market. In addition, you can use the Double Down strategy to trade cryptocurrency, gold, oil, and other commodities.
