What is a recession (RECESSION)?
Whether you’re a trader or not, you probably have the impression that “recession“-related stories will be brought up again “after a while” in the media, and sometimes even later. report. And this sense of time seems to have a certain frequency, in fact, it is indeed cyclical. If we divide the economic cycle into two phases, growth is followed by recession, and recession followed by growth. It seems a bit like the waves of the sea, we can see a rising tide (economic growth) and a low tide (economic recession). Macroeconomics generally defines a recession as a decline in a country’s GDP growth for 2 or more consecutive quarters in a year. The National Bureau of Economic Research defines it as a decline in economic activity in most sectors of the economy for several consecutive months.
Cause of recession
Both the waves of the sea and the hypothetical economic cycle of two stages have their own causes of motion. From the Keynesian perspective, the main cause of recession is only two words: supply and demand. When demand growth in the business community saturates (peaks) and begins to slow, business activity (supply) also decreases.
The impact of the recession
Generally speaking, a recession can lead to a decline in business vitality, leading to a decline in several economic indicators, such as corporate earnings, business orders, investment, and employment. This could be accompanied by rising unemployment, lower consumer spending, and falling prices and wages. And because of reduced demand and consumer spending, these phenomena could further deepen the recession and even lead to a depression or economic crisis. At that time, traditional safe-haven assets will be favored by investors, such as the dollar, the yen or gold.
How to deal with a recession
Different from the context of the English-speaking world, the Chinese like to say the word “crisis”, which seems to have a certain philosophy, that is, danger is also an opportunity. It is quite passive to expect a fable like Sai Weng to lose his horse. We also often say that opportunities are reserved for those who are prepared. Therefore, traders who want to hunt their long-awaited targets during the economic downturn must first have enough bullets in their shotguns. Therefore, regular savings, expense saving plans, and personal unemployment benefits should all be taken into account to ease the burden of living costs and make good trades in better shape!
The author knows that many traders like to trade heavily to get richer returns. However, as a retail investor, even well-known international investment institutions will sometimes stumble. Failure to do a good job in risk management may lead to the possibility of losses exceeding the principal. Worst-case scenario is that you don’t have any more money to invest when it’s a good time to wait for the target to drop above your psychological expectations. Therefore, the author believes that no matter what stage of the economic cycle, traders should learn to manage their own risk reporting, and have sufficient funds in hand to play the “number game” of buying low and selling high like well-known financial tycoons.