Volatility plays a key role behind any profit or loss made in stock trading. It is volatility that changes the prices of stocks with time. A stock which is highly volatile has frequent and steeper fluctuations than other stocks. Stock traders aim to capitalize on these price volatilities, i.e. bet which way the price will move, to earn profits from the trade. However, if they end up with the wrong conclusions, they might make huge losses as well.
When the overall market is volatile, most of the stocks are seen to have much more fluctuations. This makes the market look more unstable and unpredictable in terms of the price movements.
If the volatility is well-utilized and the traders make all the right moves, then they can earn a fortune, or, in a reversed situation, end up emptying their bank accounts. This makes it crucial to understand how to utilize market volatility while trading.
If you too are looking for tips to handle stock market volatility, you have come to the right place. Here are a few takeaways that could help you handle stock market volatility efficiently.
Reconsider Your Investment Portfolio: When the market volatility is on the higher side, you need to reconsider the constituents of your investment portfolio and the size of the investments. Make sure the portfolio consists of fundamentally strong stocks to avoid any ditches due to stock market volatility.Resizing the investment is very important at this stage in order to avoid taking unnecessary risks. The larger the investment, the higher is the risk involved in the investment. In a volatile stock market, even a small risk in investment gets magnified manifold, thus increasing your chances of losing money.
Think Long-Term: Market volatility comes and goes in phases, and the best way to get over it is to look for the bigger picture and make long-term investments. Long-term investments in fundamentally strong stocks easily survive the volatile phase without taking much damage.
Do Not Panic: Panicking in a volatile stock market can mislead you into making the wrong decisions and eventually losing a large amount of money. Even a small wrong decision can end up as a magnified loss. So be careful and take every step only after diligent research and analysis.
Try Not to Invest When Unsure: When you are unsure about the stock, it is better to do nothing than to make any wrong decisions. This will save you from repenting later. The best way to avert any forthcoming disaster is to not take any unwarranted leaps.
Prefer Investing in Gold Over Equities: Gold has, so far, been successful even when the stock markets have turned volatile. While equities might go in either direction in a volatile phase, the price of gold is mostly seen climbing up. Therefore, switching over to gold from equities could be a wise move in order to earn profits in a volatile stock market.
Adopt Rupee Cost Averaging Approach: Rupee cost averaging is one of the safest approaches in a volatile stock market. Rupee cost averaging enables you to buy more units of fundamentally strong shares when the prices hit a low due to market volatility. This is a good strategy for a long-term investment, by way of which, you can accumulate a good number of stocks for very cheap. These stocks would eventually see a price rise in the long-term and deliver better profits.
Focus and Try to Find Predictability: Focus is the key to success in a volatile stock market. Focus and clarity of thought will help you predict the price movement of the stock during volatility. A better predictability of the direction of price movement will be helpful in earning good profits.