Stock market crashes are a common phenomenon in the financial world. There is no way to predict when will the stock market crash. But, before any crashes happens, market always gives some signals or indications. Here, we exactly discuss about those indications that will help you know when the market crash will happen.
What is a Stock Market Crash
A stock market crash is a sudden, sharp decline of stock prices in the entire stock market, which result in the heavy loss of wealth. It is an abrupt, dramatic decrease in the value of a given stock market. The crash can be caused by various factors such as company scandals, economic downturns, war, or natural disasters etc.
A stock market crash is usually attributed to panic selling and often occurs after an extended period of rising share prices and overvaluation. It is often followed by bear markets, which can last for years.
What are the Factors that Cause a Stock Market Crash
A stock market crash can be caused by many factors. These include wars, natural disasters, and political instability.
The reasons for a stock market crash can vary from one country to another. In some countries, it can be because of a political event that affects the economy. In other countries, it can be due to natural disasters that cause people to lose confidence in the economy. When people stop believing in the economic stability of their, they start selling their stocks and that can cause stock market crash.
The stock market crash of 1929 is considered as the most significant economic event in the history of the United States where as the share market crash of 1929 is considered as one of the worst economic events in history.
The reason for 1929 stock market crash was speculation, fraud, and panic that led to a loss in confidence in the American economy. But 2007-2008 stock market crash was caused by subprime mortgage crisis and lack of liquidity in the credit markets.
How to Know When Will the Stock Market Crash
It is not always possible to predict when the stock market will crash. The stock market is a volatile place. And, there are many factors that influence the stock market such as interest rates, inflation, inflation expectations, war, fraud activities, natural disasters, political instability etc. These factors are constantly changing which makes it difficult to accurately predict what will happen in the future. However, there are some indicators that can warn us when the market might be about to go down.
Few signs that indicate when a stock market crash may be on its way are as follows:
- If people start selling stocks and stop buying them, then that could be a sign that the market is going to crash
- If there is a major shift in sentiment or panic among investors
- Another sign of an impending crash is when people stop investing in stocks and start investing in other assets instead like gold or real estate
- If there is rapidly high increment in unemployment in the country
- If there are too many investors who are trying to sell their stocks at once, then this could also be a sign that the market is about to crash.
- Rapidly increasing interest rates
- Finally, if there is a sudden drop in demand for goods or services, then this could also be an indication that the stock market may soon face free fall.
When the market is overvalued, it is more likely to crash. This is because when investors believe in an asset’s future growth potential and ignore its risk, it will be overvalued.
How Reduce Loss When Stock Market Crashes
When the stock market crashes, the most important thing to do is to remain calm and don’t panic. The first thing you should do is to see if you can sell some of your stocks at a lower price. You should also consider buying more stocks that are on sale or stocks that are at their low for the year.
If you still have capital left, then it would be wise to invest in other securities like bonds, commodities, and real estate. The best way to reduce losses when share market crashes is by diversifying your portfolio.
5 Tips to Reduce Loss When Stock Market Crashes
- Sell when the market is high
- Don’t panic and wait for the right time and situation to sell the stock
- Invest in stocks that have a low volatility
- Diversify your portfolio and invest in stocks from different sectors
- Buy stock as soon as you can and don’t wait for the market to recover
So, this was our complete guide on share market crash. We discussed about some basics of stock crash, factors that causes it, tips to reduce loss and we mainly focused on ” How to know when will stock market crash “. I hope you have liked the information shared in the article. If you have any confusion or question then please put in the comment box as below. Thank You !
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