We certainly have a terrible year behind us. Not saying this one is pandemic free the nightmare seems far from over, and although the main suffering caused by COVID-19 is in human life, at one point the global economy was also in huge problems, and for some it still is.
Anyone interested in finance remembers how quickly the stock markets crashed. But to the surprise of many, the markets then saw a huge rally, better than anyone could hope for, and maybe we were all too pessimistic, which is to be expected when you think about it. Nonetheless, the recovery is astounding.
The main reason for this renewal lies in the Big Tech companies and Federal Reserve stimulus. This is why so many of us were optimistic for this year and for the years to come. After all, with vaccination being practiced around the world, the stock market is expected to continue to improve.
So if you share that optimism and are interested in stock trading, be sure to check it out beststocks, but if you are still wondering whether it is possible to predict when the stock market is going to collapse, we will discuss this topic in more detail in this article.
Previous market crash
Before you can predict the future, you need to know and understand the past. So let’s take a brief look at the most important clashes in the stock exchange records. The first is probably the most famous of all, the one that happened in 1929, and for almost ten years the market was recovering from this blow. What mainly helped the the economy has grown after this one is the industry developed during World War II.
Then we have another major crash that happened in 1987, which we remember today as Black Monday. That day, nearly a quarter of the market’s value was lost, but this time it only took two years to fully recover. The next one is also quite infamous. The attack on the Twin Towers in 2001 caused the market to fall.
But again, everything was relaunched in record time, with only a few months to go. Then we had one that marked a lot of our lives, which happened in 2008, because it was one of the biggest stock market crashes in history. But within a few years, the market not only recovered, but was more powerful than before the crash. The surge continues through to that of 2020, caused by the pandemic, and in terms of how quickly the crash happened, it was on the record books.
There was global devastation huge proportions too. However, the trend of rapid recovery continued. In a remarkably short period of time, most stocks were better than they were before the crash.
So what can we conclude from this brief history lesson? First of all, it seems that all of them tend to happen due to some extraordinary event over which the market has little influence. A good example of this would be the terrorist attack and the COVID pandemic. In addition, the stock market has become much stronger since 1929, and now, even when the crash occurs, the recovery is extremely rapid. In our opinion, this is a reason for optimism.
But if someone wants to trade in the stock markets, the fact that they can recover quickly means little. There is a more relevant question that gives us a headache. One being, what are the signs that the stock Exchange could be about to crash. One of the most crucial indicators would be rampant speculation. What does it mean? This means that a bubble is being created in the stock market. There is a circle of positive feedback that is part of the way the business is conducted. This baseless bragging leads to the stock’s value rising beyond its real value, hence the bubble we mentioned.
The fact that stocks are high becomes one reason they are expected to continue to rise. Since none of this has cover, a crash becomes the only way out. This is the most important red flag that there is something wrong with the market. After all, this is precisely what happened in the 2008 crash. Now, that doesn’t mean that some small bubbles will have huge consequences, as some small changes can fix these issues. So what to do? While these bubbles seem like a great opportunity to make money, they come with a risk of losing too much. It would be up to the wisest to avoid them.
Optimistic but cautious point of view
If you can successfully predict the stock market crash will probably involve a little luck. The point is, it is certain, and these accidents will happen. If you want to trade stocks, sooner or later it will be part of your career. Of course, you want to predict them, but that doesn’t mean you have to panic every time you have a valid reason to think the market will crash again.
And this is where the biggest problem lies, there is often a good reason to believe that the market will suffer some disaster. Let us give you an example. In May of last year, many of us expected the second crash right after the first. And there were good reasons for it. There have been so many people who have lost their jobs, so many businesses have gone bankrupt and the cases of COVID-19 have been on the rise. But while everyone expected, a second crash did not occur. This is why it is essential not to be too pessimistic about the stock markets.
As we have seen, there are some very good ways to get an informed idea of a stock market crash. But we have also seen that there is no sure, one hundred percent sure way to find out. Ultimately, being careful and analyzing all you can is a smart thing to do, but with stock trading sometimes a little faith is needed. After all, if you don’t take any risks, you won’t make any profit.