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.