Wide fluctuations in prices and heavy selling in a short period of time characterize stock market volatility. It’s usually the result from heavy selling or buying. Many people say that volatility is result of day traders. Changes in the economy, company news good or bad, social media and IPO or an analyst recommendation can influence a stock.
If can be difficult to look at your investment portfolio day after day red numbers as your investments gain seem to dissipate much quicker than the time it took to earn them. This is especially true for new investors. Second-guessing their investments choices while attempting to exit their positions lead to more volatility.
Momentum investors also contribute to market volatility by attempting to quickly exit a position to move over to the next big thing. Momentum investors are not long-term investors.
For years, people have been predicting the next market crash. Many financial news channels are predicting the market is crashing. The truth is that no one knows for sure exactly. The thing to remember is that the market will go down and the market will go up. Attempting to time the market is next to impossible.
How to Handle Volatility
Market corrections (market crashes) are inevitable. Here are a few things you can do so that you are more prepared for either:
- Stock market volatility is unavoidable. It’s not much fun to watch your stocks all day when the market is down, so don’t look at it. Rapid swings in the market can be unnerving. Understand that you have invested in good companies.
- Don’t jump in and out of stocks. The moment you sell a stock the loss is realized so stay cool. Try to stay invested.
- If you must trade in a volatile market, make use of a limit order or trailing stop loss. A limit order is just how it sound you place a limit at the price you are willing to sell at. A trailing stop loss is similar to a limit order but you place a percentage on the amount that you are willing to lose before the sell is initiated automatically.
- Invest in ETFs. Vanguard has sector ETF which allow you to invest in a specific industry.
We can all make guesses as to why the market is experiencing volatility, however, because ups and downs are going to occur in the stock market, investors must find ways to deal with it.
Investors must remember that there are always risk when investing in the stock market.
Disclaimer: Nothing published on this website is personal financial advice. We are not licensed financial advisors, we are financial friends.