How to Handle Stock Market Volatility?
05 Sep 2018
Volatility plays a key role behind any profit or loss made in stock trading. It is volatility that changes the prices of stocks with time. A stock which is highly volatile has frequent and steeper fluctuations than other stocks. Stock traders aim to capitalize on these price volatilities, i.e. bet which way the price will move, to earn profits from the trade. However, if they end up with the wrong conclusions, they might make huge losses as well.
When the overall market is volatile, most of the stocks are seen to have much more fluctuations. This makes the market look more unstable and unpredictable in terms of the price movements.
If the volatility is well-utilized and the traders make all the right moves, then they can earn a fortune, or, in a reversed situation, end up emptying their bank accounts. This makes it crucial to understand how to utilize market volatility while trading.
If you too are looking for tips to handle stock market volatility, you have come to the right place. Here are a few takeaways that could help you handle stock market volatility efficiently.
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Reconsider Your Investment Portfolio: When the market volatility is on the higher side, you need to reconsider the constituents of your investment portfolio and the size of the investments. Make sure the portfolio consists of fundamentally strong stocks to avoid any ditches due to stock market volatility.Resizing the investment is very important at this stage in order to avoid taking unnecessary risks. The larger the investment, the higher is the risk involved in the investment. In a volatile stock market, even a small risk in investment gets magnified manifold, thus increasing your chances of losing money.
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Prefer Investing in Gold Over Equities: Gold has, so far, been successful even when the stock markets have turned volatile. While equities might go in either direction in a volatile phase, the price of gold is mostly seen climbing up. Therefore, switching over to gold from equities could be a wise move in order to earn profits in a volatile stock market.
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Adopt Rupee Cost Averaging Approach: Rupee cost averaging is one of the safest approaches in a volatile stock market. Rupee cost averaging enables you to buy more units of fundamentally strong shares when the prices hit a low due to market volatility. This is a good strategy for a long-term investment, by way of which, you can accumulate a good number of stocks for very cheap. These stocks would eventually see a price rise in the long-term and deliver better profits.