5 Tips To Help Investors Survive Volatility
The stock market can be a risky venture for even the most cautious and prudent of investors. Right now is a particularly turbulent time for the stock market, as 2016 has been filled with volatility. Investors who are more risk-averse tend to shy away when markets are volatile, but for seasoned investors, there is a general belief that some of the best opportunities can be uncovered when markets are rocky.
photo/ Public domain pictures via Pixabay
If you’re a little nervous about volatility, below are five tips to help you survive and even thrive:
- Use Limit Orders
A limit order is used as a way to combat volatility and also to reduce your risk, particularly in the face of what happens with high-frequency day trading. A limit order means you’re placing an order to buy or sell a stock based on a certain price. This can help investors who are worried they’re going to pay more than what they want for a stock, and it can also help them to sell if a stock drops to a certain level. Other trading orders that can be used to weather volatility and mitigate the risk potential include stop orders and conditional orders.
- Don’t Follow the News Too Closely
If you’re an investor, it can become like an addiction to be constantly tuned into the financial news, but this can also impact your decisions, and not necessarily in the most positive way. If there’s a lot of volatility going on, it can be best to turn off the TV and take a break from following the news so that you’re not basing your strategy entirely on knee-jerk reactions.
- Think About Waiting
For active investors and day traders, it can be extremely tempting to get out of certain stocks during times of volatility, but this may not always be the best move. You may have to train yourself psychologically to avoid the desire to get out at the wrong time. If you’re questioning your decisions, try not to make any moves until the markets have steadied a bit.
- Always Maintain a Strategy
What’s important to do when you’re investing in any market conditions is to do so within a framework of your own predetermined strategy. This will help you decide whether it’s best to hold onto an individual stock, even when it’s displaying volatility, or if you should get out. Define your strategy based on your personal goals, and use these goals as the guiding factors in your day-to-day investment decisions.
- Look Beyond the Mainstream
Certain sectors tend to be favored by investors, and particularly high-frequency traders—for example, tech and pharmaceuticals. If the market is volatile, you may want to stay out of these areas and instead, look to more conservative options.
For active and day traders, volatility can be a trying time, but what’s important to realize is that you should plan for a stock to no longer work in your favor, and you should be prepared to get out if necessary. By being a proactive planner, you can weather volatility more successfully.
Guest Author: Carmelo Hannity
