How to Overcome Volatile Markets

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Volatile times are indeed times of trial for an investor. It is all natural for an investor to question their investment strategies during such complicated periods. The most affected ones are the novice investors who can be lured to pulling out their investments altogether and play it safe. However, market volatility is like natural calamities – it is inevitable.

In this article, you are going to learn the steps on how to overcome volatile markets.

What is a volatile market?

Volatility is a statistical measure of a market’s or security’s tendency to rise or fall given a short period of time. In order to measure the variation, the concept of standard deviation is being used on the return of an investment.

The main characteristics of volatile markets are wide price fluctuations and frantic trading. Oftentimes, it results to a disproportion of trade orders. This is often termed as order imbalance due to an excess of buy or sell orders, thus resulting to impossibility of matching the buyers’ and sellers’ orders.

Why markets move up and down?

In a span of a short time, markets fluctuate. Actually, it’s the nature of the markets to become volatile.

Analysts say that market volatility is often caused by the following factors: economic releases, market news, company news, renowned analysts recommendation, an initial public offering (IPO), surprising earnings results, institutional investors, short sellers and even by day traders.

Investors are often moved by psychological influences, since price changes because of a change of mind by the investor.

How can you deter market volatility?

Maintaining a long-term horizon is one way to overcome market volatility. Ignoring the short-term horizon keeps you away from experiencing the hassles of market volatility. However, one common misconception about long-term investments is that holding a stock for a year or so will make you money; actually it is not the case, but knowing and applying the fundamentals will.

Another advice is by staying invested. Being unmindful of the short-term fluctuations helps an investor. However, it is indeed easier said than done – watching your portfolio fall down by a huge percentage and being apathetic about it is bizarre.

Moreover, during periods of market volatility, there is still a chance that you find a company that you think can become good in the long run. If such happens, do not hesitate to buy it.

Conclusion

Since there is no clear data on what causes market volatility, investors must be resilient enough to deal with such condition. It is important that investors must know the potential risks encompassing times of volatility. It is recommended by experts that choosing to stay invested, especially if you are confident with your stratagem, really works in fighting off volatile times. But if you decide to trade during such periods, you have to be conscious enough of how the present market environment can affect your trade.


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