Stock Market Down: Trading When the Markets Crash

Isaac Newton's famous third law of motion, "what goes up must come down," can arguably be applied to the stock market. History shows that whereas the stock market had high returns, it also had multiple crashes and drops. Some of the most popular include the Black Monday crash of 1987, the 2008 Financial Crisis, the 2020 COVID-19 crash, and, more recently, the 2025 drops driven by US President Donald Trump's controversial tariffs.

Naturally, these declines may lead to market selloffs and panic across trading floors. However, experienced traders and investors who know that stock market drops are normal and that the market has the potential to rebound may also be interested in knowing how to approach the market in these challenging times to turn a drop into a potential trading opportunity.

In this article, we discuss the 2025 market crash and what you can do (instead of panicking) when the markets drop. However, it is important to note that past performance does not reflect future results and that this is not trading or investing advice but solely for informational purposes.

Let's dive in:

TL;DR

• Stock market crashes have taken place multiple times in history.
• Examples of stock market crashes include the Dot-com Bubble, Black Monday, the COVID-19 crash, and the 2025 Trump Tariffs Crash.
• While market sell-offs often trigger panic, experienced traders recognise that crashes present opportunities to buy undervalued assets through strategies like "buying the dip."
• The key to managing market downturns lies in staying calm, using risk management tools, diversifying your portfolio, and staying informed.

Historical Market Drops

There are multiple market crashes that took place throughout history, and the main ones include:

• The Wall Street Crash of 1929
• Black Monday Crash of 1987
• Dot-com Bubble 1999-2000
• The Financial Crisis of 2008
• The Covid-19 Crash in 2020
• Trump's Stock Market Crash of 2025

Read more in-depth about stock market crashes in our article titled "Understanding Stock Market Crashes."

The 2025 Stock Market Drops

Since his re-election back in November 2024, whether for better or for worse, US President Donald Trump has shifted the markets and generated notable volatility. This was especially evident in the first months of 2025 when Trump declared sweeping trade tariffs on some of the world's most powerful and emerging economies alike.

Take, for example, the notable drops experienced on 4 April 2025, whereby the Dow Jones lost over 9%, the Nasdaq 11%, and the S&P 500 about 10% in response to the US-SINO trade war. For reference, on 2 April, Trump announced 50% additional tariffs on US imports from China, and two days after, China responded with 34% retaliatory tariffs. As such, given these tensions, it may not come as a surprise to learn that market sentiment was characterised by sell-offs and panic.

However, whereas many resorted to sell-offs, others bought the dip on certain assets.

What Is Dip Buying?

As mentioned above, when the markets are down, traders either sell their assets or buy the dip. While there's no right or wrong approach in times of uncertainty, it is important to familiarise yourself with dip buying and decide which approach suits you best.

Buying the dip, otherwise known as "buy low, sell high," is an approach by which traders buy a certain market asset, like a stock or a commodity, at a low price (when the markets plunge) with the hopes of its price ascending, and selling it high.

Dip buying can be a successful strategy, but it also carries significant risks and may not be appropriate for all traders. It has generally been most successful when used in confirmed uptrends, where the price is consistently reaching higher highs and higher lows.

What Is Short-Selling?

Short selling, or shorting, is a strategy in which traders and investors speculate on a security's decline by borrowing it, selling it, and then repurchasing it for less money. In other words, short-selling aims to profit from an asset's decline. However, it is important to note that this type of trading strategy is accompanied by multiple risks.

How to Trade & Invest When the Markets Crash?

Don't Panic

Try to approach the market with more confidence and logic rather than panicking, as the latter can lead to hasty decisions and even mistakes. Understand that the markets go through ups and downs, bullish and bearish conditions and that even market crashes, although devastating, are a normal part of the economy.

Use Risk Management Tools

Risk management tools such as stop loss and trailing stop can help you navigate market uncertainty more easily and mitigate potential losses.

Know Your Limit

Know how much money you own and how much you're willing to risk. If you need more liquid money, then opening new trading positions may not be the right fit for you. If, on the other hand, you have enough money on the side and you want to gain exposure to new stocks that you previously couldn't purchase or trade due to their high prices, then opening a new trading position and purchasing these may be helpful for you in the long run.

Diversify Your Portfolio

To mitigate risk, it is important to diversify your trading portfolio to spread risk across multiple markets instead of one. For example, you can choose to invest in or trade safe-haven assets like gold or silver, defence stocks, and more volatile yet less expensive stocks like tech shares.

Study the Markets

Studying the markets, their risks and rewards, and keeping track of key news that can emerge are crucial to your potential success, in general, and when the markets dip, in particular.

Consult a Market Expert

If you feel the need to do so, consulting a market expert can help you navigate the markets with more ease, especially in times of a possible recession.

Conclusion

Stock market crashes are inevitable, as shown throughout history, and the 2025 drop, driven by trade tariffs under President Trump, is no different.

While market sell-offs often trigger panic, experienced traders recognise that crashes can present potential opportunities to buy undervalued assets through strategies like "buying the dip."

The key to managing market downturns lies in staying calm, using risk management tools, diversifying your portfolio, and staying informed. Always consider consulting an expert when necessary, as navigating volatile markets requires careful planning and knowledge.