Flattening the curve strategy for bear markets

What should one do when fundamental and technical indicators don’t offer much defence from sudden ups and downs in the market? After all, no one imagined in their wildest dreams that crude oil could trade in the negative.

If markets throw you curved balls, you should focus on flattening the curve—i.e. safeguarding your trade from the market contagion and reducing the number of trades on the losing side.

Flattening the curve has become a popular phrase nowadays in the world’s fight against COVID-19. Flattening of curve has three elements—maintaining social distance, isolating oneself when sick and washing one’s hands often. However, asymptomatic instances that have rather ignited the spread of corona put a question mark on the effectiveness of the principle of flattening the curve.

Just because of the rising number of asymptomatic cases will you deny that the lockdowns, isolations and enhanced hygienic practices have helped in keeping the new cases under check in Italy, China and even in India? Otherwise, coronavirus might have spread like an inferno.

First and foremost, measures such as lockdowns and isolations are just to buy time until the healthcare industry gears up to handle the pandemic situation.  Breaking the chain of spread is important. That said, lockdowns can’t be a permanent solution because there’s a huge economic cost associated with it.  

Why not follow the same logic when it comes to investing?

Flattening of the curve is, in layman’s language, a risk management approach.

 In investing, the flattening of curve strategy combines three components—maintaining distance from stressed, illiquid and high-beta counters, applying strict stop-losses and isolating yourself from the high-leverage trades.

This strategy might reduce your profits to an extent but that’s meant to help you sail through this present market pandemic. Intelligent investors and traders minimize their losses in bearish phases—as it is said Jaan hai to jahan hai.

You may also like to read: Corona-age investing: start ups, shut downs and reboots…

Disclaimer:

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.