Volatility is often equated to higher risks, which inevitably comes along with any kind of investment. More often than not, volatility means panicked investors with over-cautious decisions. Many times a huge portion of market participants start overhauling their portfolios right off the bat.
Stock market volatility is when the stock prices fluctuates more erratically than usual, causing losses or gain among various Forex Trading Video Tutorials traders and investors owning that stock.
It may appear really bad for everyone else, but keep in mind that without volatility, huge gains won’t be possible, and the market may be extremely dull for thrill seekers.
Volatility can be used to your advantage if you follow these simple tips.
Tip 1: Try to Ignore Volatility until It Goes Away
When the Forex Market is very volatile, it is indeed a good idea to just hold on to your positions and let it pass, like a stormy day while you’re sitting in your house drinking a cup of Joe.
Some investors think that this approach sounds lousy and counterproductive, it’s still very effective against incurring losses due to market volatility. This is because it’s next to impossible, if not impossible, to time the market top and market bottom accurately.
It is, then, better to hold on and stay on track until the storm passes. Attempting to time the market and failing to do it correctly may lead to much larger losses than if you just stayed put.
Tip 2: Buy more Shares at Lower Price
As Warren Buffett has already asserted before, a down market is a buying opportunity. This also means that when volatility strikes, even the good stocks will plummet, presenting a very good chance to purchase additional shares at a discounted price.
When you do this, you are also lowering your average cost per share for that security. This is typically a great chance for investors who have longer-term investment horizons and who are bullish about the market, believing that the market will do well in the longer run.
Just remember that if you do this, you have to gauge your risk tolerance first and overall investment philosophy.
Tip 3: Review Your Investment Plan
Writing up an investment plan isn’t a one-time job. It’s something that you should do all throughout your investing career.
The market never stays the same and the happenings within its territory are almost always new, requiring investors to be on the lookout for new and more effective ways of taking advantage of such changes.
This means that your investment plan should be adjusted and updated in different periods, most especially when the market become too volatile. Rethinking and reviewing your investment plan goes a longer way than you can imagine.
Tip 4: Stick to Your Investment Plan
Reviewing your investment plan doesn’t necessarily mean changing it or ditching it altogether. When you review your investment plan, you look for its strengths and weaknesses, associating them with threats and opportunities that might spot in the market.
The main point is that as much as you can, make your investment plan suitable to the current market condition. Adjust or change it if necessary—only if need be.