High volatility causes fast changes occurring in the price of an asset.
Volatility in the stock market can be caused by many factors, such as government taxes, inflation, economic policies, competition, economic crises, etc.
While volatility can bring big profits, on the other side it can be risky also. Therefore, you need to be aware of how to trade stocks during volatile times, as well as how to manage the high risk that comes with the trade.
Advantages of Trading Stocks in Volatile Times
Buying or selling stocks in volatile times can actually be very profitable despite the risk. However, there are other advantages that traders can make the most of. A few of them are:
Just like cryptocurrencies and forex, stocks are liquid assets as well. You can buy or sell stocks efficiently because of their liquidity and not encounter any trading obstacles. In this liquid market by using short-term trading techniques, you can actually turn your investments in stocks into huge profits.
2. Working Hours
While the stock market is not open 24 hours of the day in the same way as the likes of the crypto market, there are other ways that this limited trading time can benefit you.
Pre-market and after-market trading (before and after the stock market opens) are used to shape the nature of the stock market. During this time, investors can use these periods to analyze the stock market and the corporations they want to buy or sell stocks from.
Some news and updates regarding the stock market are only given during pre-market and after-market hours, so investors can use this to their advantage while the market is open.
Check Out: Day Trading Tips for Beginners
3. Unusual Price Dips
Another huge advantage that you can benefit from in the stock market is unexpected price dips from big companies.
Since volatile markets cause sudden increases or decreases in the price of stocks, it can cause a decrease in the price of a stock of a company (relatively monopolistic) whose value is actually higher than quoted.
If you buy stocks when this price dips, you can easily turn it into profit since the price of such a company is predicted to naturally rise.
These are a few of the many advantages of volatility that you can benefit from in the stock market.
Risk Management Techniques That Help in Volatile Times
There is no investment without risk. Trading stocks in volatile times is risky but it can be profitable as well. Hence, there are some simple methods that you can use to ensure safety when trading stocks, namely those of:
1. Researching Corporations and Their Equities
Before buying or selling any stock, you should first do some research behind the corporation that you are buying or selling stocks from. You need to be aware of any major drawbacks that the company has, or if future plans that can potentially increase the price are imminent.
2. Using Stop Loss Orders
In volatile times, it is important to use stop-loss orders. Stop-loss orders are used to avoid trades at any unwanted price that could have changed as a result of fast changes in the price and incorrect price quotes. As such, you can use stop-loss orders to avoid a potential loss of money from slippage.
3. Avoid Emotions
Try not to be emotional during trading stocks. Emotions are the common "enemy" of traders and they often know how to make traders take the wrong decision in trading. So avoid emotions, and thus the chances of succeeding in the world of stocks trading will be much higher.
The list of advantages of trading stocks in volatile times and risk management strategies is very long and can not be included in such a short article. So, take a look at our voluminous article sector related to stock trading.
Liquidity, working hours and unusual price dips are some of the factors that make the stock market attractive for traders. However, for new traders, it is important to study things and clearly understand what the order types are in order to maximize the chances of success in volatile market environments.
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- The stock market, the same as the forex or crypto market is highly volatile.
- There are many reasons why volatility occurs in the stock market, such as government taxes, inflation, economic policies, competition, economic crises, etc.
- Some of the ways that you can benefit from volatility in the stock market are liquidity, the market’s working hours (pre-market and after-market) and opportunities to better research stocks, as well as price dips in companies that are usually valued higher.
- The high risk from stock trading in volatile times can be managed by researching companies and their stocks, using stop orders, and prioritizing trending stocks before price acceleration.
- For new traders, it is important to study things and clearly understand what the order types are in order to maximize the chances of success in volatile market environments.