The stock market is a fascinating place.
Watching the ticker go up and down can be exciting, or nerve-wracking, depending on your perspective.
But what does volatility really mean for stock investors and traders? And is it always a bad thing?
Keep reading to learn more.
What Is Stock Market Volatility?
Experienced investors are always trying to determine when stock market volatility is good and when it’s bad.
Rookie investors, on the other hand, are typically in the dark about this notion. Instead, they get caught up in media hype and invest their all-important funds in whatever “hot stocks” they see on their news feed.
The stock market can be a dangerous game to play (for those who are inexperienced). So before you start investing your money in stocks, it’s important that you understand the concept of volatility and how it can affect your investments.
So, what is volatility?
Volatility refers to the fluctuations in a stock’s price over time. These fluctuations can be caused by many different factors, such as economic news, political events, or even rumors. Sometimes these fluctuations can work in an investor’s favor, and other times they can cause big losses very suddenly.
When the stock market is volatile, it means that prices are moving up and down very rapidly. This can be good for investors if they know how to take advantage of it. However, it can also be bad for investors if they don’t know what they’re doing.
How to Take Advantage of Volatility
When stock prices are volatile, this can be good for investors because it provides an opportunity to buy stocks at a lower price and sell them at a higher price.
In order to take advantage of stock market volatility however, you need to have a plan. You need to know what stocks you want to buy and when you want to buy them. You also need to know when you want to sell those stocks.
It’s important that you don’t get caught up in the excitement of the moment when prices are fluctuating rapidly. If you don’t have a plan, you could end up making some very costly mistakes.
If you’d like to learn more about how to formulate a trading plan, check out my dedicated post about it here.
When is Volatility Good VS Bad?
The biggest mistake amateur stock investors make is thinking that all volatility is the same (i.e. the market is either volatile or not at all).
Experienced investors and traders however, know that the market is ALWAYS volatile, and therefore what’s important is to be aware of is HOW volatile the market is when investing or trading.
Put simply,
- When market volatility is low, that is considered “good volatility”. It means there is room for stock prices to move in a somewhat predictable manner.
- When market volatility is high however, that is considered “bad volatility.” It means stock prices can fluctuate, but it’s a lot more unpredictable.
This is why it’s so important to have a plan and to stick to that plan. When the market is volatile, emotions can run high. It’s easy to get caught up in the excitement and make impulsive decisions that you later regret.
Want to Learn How to Analyse the Stock Market?
So, now that we know that there is “good” and “bad” volatility, how do we know which way the market is going to move?
When is it “good” or “bad”? And what should you do when volatility hits your portfolio?
I cover that in detail in my FREE 90-Minute Online Masterclass, in which I show you:
- how you can anticipate the potential future of the market and make preparations ahead of time
- how you can figure out when to time your stock market entry and exit (using my straightforward ‘traffic light’ process)
- and how to analyze stocks using the 4 financial figures that matter the most in less than 5 minutes
It’s a highly interactive class complete with your own downloadable workbook, and I guarantee you’ll walk out of the Masterclass with a completely different lens of the trading and investing world.
The best part of it is, you won’t just be sitting there absorbing information – I’ll be getting you to apply what you learn on the spot so you can leave the class with newfound confidence in your trading and investing strategy.
If you’d like to join me, book your spot here, and I’ll see you on the other side.
Terry
