Lateral ranging and strong trends can be expected in the stock market which changes with time. Investors need to be prepared with different trading approaches for each scenario. Investors need to be aware that volatility in the stock market is inevitable and it is in the nature of the markets to move up and down in the short-term.
During volatility, hyper sensitivity to events and news is often witnessed and has a bearing on the fluctuation seen in intraday trading or long term investments.
Volatility can be depicted as a statistical measure of the inclination of the market to drop or rise sharply within a short span of time. Volatile markets areclassified by heavy trading and big fluctuation in price as a result of an imbalance in trades. Under such circumstances, both risks and opportunities exist for investors in stock trading.
Some of the methods to prevail in a volatile market include:
1.Focus on the big news: Usually traders get upset when the markets are volatile and having a long term view may be useful even if the trader is a short-term one. Market changes can be affected by oil prices, changes in global economy, interest rates etc.
2.Wait outside the market: This is a strategy where the trader can wait out the market instability and take active positions when markets are more stable.
3.Trade with the Trend: Going against market trend can be risky and the principal trend may not always be apparent, sometimes it might be prudent to trade with the current trend unless there is evidence of it being reversed.
4.Yield a loss or make a profit: When there is a change in the market conditions, it may be a good thought to close some positions for either a profit or to stop a loss depending on the market trend and your stock portfolio.
5.Work out a plan: Prepare a strategy to respond to big market movements and have an investment plan which includes trading objectives, tax implications, risk appetite, liquidity and having a conservative or aggressive approach.
6.Realize your options: It will be convenient to trade efficiently once you have tools that will help understand the choppy markets like insights, market analysis, news, sector research and other information on indicators.