What To Know About Stock Market Volatility Right Now

March 23, 2018

Some investors find thrill and opportunities in stock market volatility. There are always those investors who embrace risk, and even love dabbling in less conventional strategies like trading penny stocks. Then, on the other end of the spectrum are the people who white-knuckle it as the market goes through volatile points. They hate the thought of weathering the ups and downs, and they’re glued to their TV or computer screen on days where there’s a big decline.

For people who hate volatility, it’s been a rough few months. There have huge up and down swings in the stock market, so what is worth knowing right now?

Buying Is Better Than Selling

No matter what’s happened since the Great Recession, there is still a tendency of the average investor to want to sell when things get tough. This is almost always the wrong move. It is now, and it was following the Great Recession.

It is so much more worthwhile to look at declines as buying opportunities, but it requires that you are willing to take a risk, and you should educate yourself before doing so.

Seeing a decline in your portfolio is tough, but you have to reframe your perspective to see declines as opportunities.

With that being said, so many people think that if they just do a buy-and-hold strategy, it’s always going to make them money in the long-run. Yes and no. You still have to make sure your investments have strong fundamentals, so if you’re that investor who can just set-it-and-forget-it, you might want to revisit the fundamentals of your holdings every once and a while.

How To Order During a Volatile Market

If you’ve looked at the fundamentals and you’ve decided a volatile market is a good time to make a purchase, what kind of order you should you do?

A market order is always executed, but when things are moving quickly which they are during periods of volatility, you might end up paying a very different price than what you were expecting.

Most experts recommend going with a limit order. This means you’re paying a specified price or better. It’s more expensive, but you’re going to have control over what price you’re actually paying.

Be warned, however, that if you do a limit order, you’re not guaranteed that it’s going to be executed.

What Causes Volatile Markets

Finally, there is a tendency to view volatility as the result of being based on psychological factors. For example, a piece of news from the President comes out, and everyone rushes to sell their stocks. It can seem like this, but volatility in markets is actually a deeper concept and one that’s inherent to the way the system works.

There is something called efficient market hypothesis, which dictates that market prices are correct. The adjust within the consideration of all information. When there is a big change in price, this theory says that it’s from an overall change of opinion from the investing public. With this in mind, it can be really valuable to look past the noise when things are volatile.


5 Comments

  • Sally-McCann

    March 24, 2018

    A thought-provoking piece here Linda. Though, for some of us newbies to stocks, every day can seem like a volatile market!

    Reply
    • Linda Macy

      Linda Macy

      March 24, 2018

      I hear you Sally, and from what I remember of my first few weeks trading on the stock market, yes those initial months will seem continually volatile! Hang in there, and I assure you, you’ll learn to read the signs.

      Reply
    • Marcus

      March 25, 2018

      Sally, I think we’ve all experienced that feeling! But, Linda’s right. You need to be able to see the signs of a volatile market, so you know what you are heading into before you trade. Some of my colleagues thrive on this kind of market though!

      Reply
      • Linda Macy

        Linda Macy

        March 25, 2018

        Definitely Marcus, for some traders this is the perfect thrill for taking part in the stock market. Sally, you will soon be spotting the best times to trade and when not to.

        Reply
  • Sally-McGann

    March 28, 2018

    Thank you both for the confidence guys, much appreciated.

    Reply

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