Introduction to Stock Market Crashes

A stock market crash can be regarded as a decline in the prices of stocks due to extensive financial terror. It can also be termed as an unexpected loss in the value of stocks and shares in corporations. Widespread crashes are primarily caused by economic factors and havoc in the market. Since the Internet boom, there has been an increase in stock market forecasting of shares, which has resulted in more massive crashes. These crashes are social developments in which external economic happenings and crowd behavior play a major role. Psychological effects cause investors to sell stocks. Stock market crashes are usually observed under the following circumstances:

1. An extended time period of rising prices of stocks and economic hopes.
2. A market in which the price paid per stock and the earned amount ratios exceed the long-run average amount.
3. Extensive use of marginal debt and purchase by participants in the market.

Can Crashes Be Forecasted?

Stock market crashes cause huge losses, and preventing them is of paramount importance. The question is, can they be predicted? The myth that exists in the market is that these crashes are unpredictable and occur randomly. But stock market crashes actually develop over the course of years. There are actually plenty of warnings and observations that can be made in futures markets. They predict the end of bull markets and the beginning of bear markets. If these warnings are recognized, market participants can help liquidate investments and bring about prosperity in the market. The stock market game can be regarded as a branch of human psychology, as it depends largely on the human emotions that drive the market. A strong human mind-set is aware and skeptical, but at the same time realistic. If the market is showing indications of excessive euphoria or manic depression, then it can be predicted that a stock market crash is upcoming. Another sign of the arrival of a stock market crash is euphoric news media. If the media project poor records in the market’s future, a crash is likely on the way.

Conclusion

Stock market crashes are not difficult to predict, since they all exhibit the same signs. If an individual is alert enough to recognize the indications, combating the crash is not difficult. For those who cannot follow the market signals closely it is best to diversify their investments.  Try not to individually pick stocks but rather invest in ETF’s that cover bonds and broad market indexes.