1.Work with an Investment Advisor
Volatile markets can be difficult to understand and gauge. A volatile market can often defy known concepts of technical analysis, and in most cases, it is sentiment driven. While you might not be able to understand the driving sentiment behind market movements, your investment advisor might be aware about such factors which are driving market prices in any particular direction. Hence, when markets seem volatile and directionless, taking help from an investment advisor can be a very beneficial and important strategy for you.
2. Pick Value Stocks
If volatility has suddenly led to market prices falling, and there is a strong chance of a bounce back, then such opportunities can be utilized to pick value stocks because companies which are highly valued and have strong operational set up are not much affected by any short term volatility in the markets. However, their stock prices may get swept along in the tide, making them available at lower rates.
3. Avoid Ostrich Behavior
It might happen with you that in a stock market which is filled with negativity and thus resulting in volatility, you may be tempted to just ignore the happenings and wait for the volatility of subside. This can be quite dangerous for your portfolio and for your wealth. Negative news and falling markets can also give a great earning opportunity for an opportunist and adopting an ostrich behavior by ignoring the bad news will not help your financial position much as you will not on lose your investment capital, but might also lose earning opportunity presented in a volatile market.
4. Have a Well Diversified Portfolio
When markets turn volatile, not necessarily do all sectors turn negative. In a volatile session, some sectors would most likely be positive, while other sectors would be negative. You may be caught on both sides of the swing, where your investments in one place may be showing profits while your investments in another sector may be in negative. This can help you minimizing your risk. A volatile market often calls for diversification of portfolio to lessen the risk.
5. Invest in Dividend Paying Stocks
If you are planning to invest for a long term and you are hoping to earn income from your stock market investments, then volatile markets give the best opportunity to enter in the world of long term investing. It is during these times that dividend paying stocks can be accumulated at cheaper valuations which can essentially by ‘bought and held’ forever.
6. Stay Invested
It is very common for investors to exit from the markets at the smallest sign of volatility. Especially is you have invested money in open ended mutual funds, looking at loss in NAVs might be a trigger to withdraw funds or stop SIPs. But this can be a huge mistake, since you will be losing out on the movement which follows such downward slpe where prices climb again. This is the most crucial period of a business cycle when the prices gradually start recovering and if you lose on this part, then the volatility has not served any purpose for your investments. Hence, you should always stay invested.
7. Be patient
Lastly, you have to remember that each phase in the stock market has some definite end point. Each rally will have some correction and each correction will have a rally at the end of it. If you have planned a strategy o make use of these ‘swings’ in prices during volatility, then always let the prices swing to its fullest and only then take action. Impatiently closing position without taking help of the entire swing is not helpful and hnce is not a wise strategy.
Conclusion
Above all strategies and plans, what you really need during a volatile stock market situation is a control on your emotions and yourself. You have to think practically and coolly in volatile times and not lose focus of your investment goal and objective. If you have mastered your emotions in volatile market conditions, then you have conquered half the battle. Take decisions practically and based on research and science and not merely sentiment, and you can become successful trader even in volatile market conditions.
