One of the most thrilling parts of investing in stocks is watching it rapidly move up and down over time. The prices are always changing and it’s as if you’re magically watching your money grow, and deteriorate before your very own eyes.
There’s no worse feeling than losing money you’ve invested in stocks. One second you’re up a dollar, the next you’re down two. It’s as if you just watched your money disappear into thin air.
Learning how to trade in a volatile market can pay off.
What Is A Volatile Market?
A volatile market is a market in which the stocks fluctuate rapidly, constantly going up and down, and are overall unpredictable. A volatile market can be caused by a number of factors such as news reports, tips from respected analysts, and earning results.
An unopened gold mine was testing for gold and found an area that could potentially contain a surplus of gold. This type of news would send the stock soaring.
A few days later, they received reports that the government will not approve of the goldmine because the location is on Native American land. Well, this would send it falling right back down.
Creating Your Investment Plan
You need to create a plan. Don’t just walk into it expecting to make a fortune and then cash out.
When creating a plan for a volatile market, there are many things to consider:
Start off by researching the company and their financial condition.
Decide how much you are willing to lose, how much you want to profit and be realistic.
Finally, the biggest piece of advice I could give for creating an investment plan is to trust the system, not your emotions.
Steps To Take To Avoid Risk
When learning how to trade in a volatile market, the main thing to understand is that there is risk. You need to understand it, you need to face it. There are a few ways in which you can avoid many of the risks, but you cannot completely avoid it.
If the market is falling, don’t be the hero who tries to catch it at its lowest. It may continue to fall, and all you can do about it is sit by and watch your money fade away. You never know when the stock will bottom out. Remember, the market changes itself, you don’t change it.
Dollar Cost Averaging (DCA)
Dollar cost averaging is when you set a fixed amount of money to invest into a given stock, usually, on a weekly to monthly basis. DCA is a great choice if you are uncertain on when to buy a stock, or if you don’t want to invest all at once.
The good part about dollar cost averaging is that if you lose money, you have a fixed price and you don’t care quite as much. And if you make money, you get a good slice of the pie and you can decide whether you want to invest more.
If you want to play it safe, your best bet is to use limit orders. Limit ordering is a simple tactic that can be used on almost every online trading platform.
Limit ordering is when you put a set price to buy the stock (start limit order), and a set price to sell the stock (stop limit order). This reduces the risk of buying into a plummeting trade deal by allowing you to buy in as the market starts to trend in a direction. Once the market hits the stop limit order you set it at, it will automatically be sold.