How to Help Your Traders Continue Trading in Bear Markets
“If you’re going to be in this game for the long pull, which is the way to do it, you better be able to handle a 50% decline without fussing much about it.”
This trading mantra, given by Charlie Munger, helps put market fluctuations into perspective. But traders may get nervous when there are steep market downturns. They need to be reassured that instruments like CFDs, futures, and options create opportunities even when the markets turn bearish. So, how can your brokerage encourage traders to maintain high activity during market pullbacks?
Why Encourage Trading in Bear Markets?
2022 was the worst year for the global markets since the 2008 recession. The DJIA declined by 9%, S&P 500 lost 19%, while the Nasdaq fell by 33.1%. These indices, as well as many others, fared miserably. This is not a one-off either. The market slows down every 3.6 years for about 9 months.
Many digital-native traders are keen to be in the market for the long haul but are more focused on strategic financial management than previous generations. Providing them with adequate tools to make the most of opportunities presented by declining markets can be a differentiator for your brokerage in the increasingly competitive landscape. Moreover, it can mean continued revenues from trading activity in changing market conditions.
How Can a Broker Facilitate Trading During Downtrends?
Traders are inclined to take any opportunity that comes their way, provided they know how to take advantage of it. Brokerages play a key role in introducing opportunities and techniques to traders. Here are a few steps that can help the cause.
Educate Your Traders
Start by educating your traders about uncovering trading opportunities with CFDs during bear runs. Make them aware of safe-haven assets and how to diversify their portfolio to hedge risks.
You can do this via email newsletters or social media interactions. It is essential to help traders recognise the benefits of trading when prices are declining.
Provide Sentiment Analysis
A bear run does not necessarily mean a continuous downtrend. Bear runs are often interspersed with temporary spikes. Traders equipped with appropriate tools can predict bear market rallies. Social media chatter is a great place to gauge popular sentiment. Twitter buzz, discord discussions, and other social media content can be used to derive quantitative insights into market sentiment. NLP-based conversation analysis can help extract trade ideas and predict if bulls have the opportunity and strength to create a momentary spike.
Providing geopolitical, economic, and commercial news analysis to identify opportunities can also encourage traders to keep going. Remember how oil prices spiked after sanctions against Russia were executed?
Facilitate Risk Management
Bear markets may be terrifying for new traders. Even traders with some experience make wrong decisions when shorting an asset. You can help them protect their capital by providing risk calculators, volatility notifications, and analysis reports to help them make more informed decisions.
Timing an exit is critical for risk control. Encourage and enable your traders to use stop loss and limit orders. Additionally, facilitate placing buy and sell orders simultaneously on instruments that can be traded in both directions. It can help minimise losses in case an expected upturn does not materialise.
Supporting, and empowering your traders with the proper knowledge and technology is key to keeping them engaged during market downturns. Autochartist is a leading provider of cutting-edge trading tools that help brokerages like yours serve their traders better. The risk management toolkit is equipped with multiple risk analysis and calculation tools to help traders quantify their risk appetite and exposure to make informed decisions. The analysis and reports are available in multilingual, customisable formats to help you keep traders engaged for longer. Contact us now to learn how API-based tools can accelerate trading activity during bear runs.
