Is stock market trading good in this economy? To answer this question, we need to consider the nature of stock market trading. Stock trading happens every trading day throughout the trading hours and the stock prices fluctuate based on many parameters. The overall market may be bullish when economy is good or bearish when economy is bad, but this fact does not really stop the day fluctuations in the stock price. So when we are talking about economy, we are talking long-term and when we are talking about stock market trading, we are talking short-term.
However, if we talk about stock market investing, the outlook is completely different and that is not the focus in this article.
So coming back to stock market trading, here are some points to be kept in mind when the economy is not going well.
Margin costs
When the economy is not good, the interest rates would go high and the cost of margin can go high. However, when we are talking about day or position trading, this may not be the biggest factor unless you are doing over trading without getting good results.
Market volatility
Volatility can go up any time, but in a bad economy it can fluctuate even more due to increased uncertainties. Depending upon your trading system, you can have trading patterns that use market volatility or you may choose stocks or indices that have lower volatility, whatever may be the case, you should be well prepared for directly facing volatility any way, when you have taken up trading. But remember, in a flat market, you can not trade anyway.
Trading in global markets
This point is applicable if you are doing trading on global markets. Some global markets may rise faster than others depending upon the overall situation like it happened in Asian markets last year. However when one is looking at stock market cycles, and using well-proven strategies for trading, it simply boils down to which stock or which market you choose in a specific situation.
Bull or bear?
When the economy is down, the stock market also might be in a bearish cycle. If you are one who likes both shorts and longs, and are able to identify which side to take, this is not a big problem. But shorting is normally considered risky by many, though personally I don’t believe so. So for those, who prefer only playing long, it is better to avoid bear markets.
The final question:Trading or No-trading?
In trading you are utilizing the ups and downs of a stock price irrespective of long-term economic situation. Stock Market Trading is inherently risky in nature and one should be prepared for facing all risks while trading irrespective of economic situation. There are times when one should avoid trading but those times do come irrespective of the economy. Study and learn the skills, prepare well for the risks, take all the necessary precautions and do well in your trading.
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