The stock market has been swinging in and out of stability for years. Worries over global issues, the domestic economy, international economy, and international relations all impact the US stock market. With of these factors in play, it’s no wonder that periods of high volatility are to be expected.
While volatility in the market might make some cautious of investing, periods of volatility actually provide many opportunities for smart investors to make some good money. You’ll of course want to exercise some common sense and be aware of the higher risks of investing in volatile stock. But there’s no reason for even the average investor to shy away from it.
Here are 7 strategies to make money in a volatile market.
1. Utilize Open And Close Times
Opening and closing times are some of the best times to buy and sell stocks. The first couple of hours the market is open, trades are more likely to be fueled by investor sentiment, especially in a volatile market where things are looking uncertain. This is a great time to snag stocks for a great value.
In a similar way, closing time has the tendency to cause an uptick in stock prices. This is again because of investor sentiment. Buyers realize their window to buy for the day is closing and run to grab shares before the close. The hope here is that the stocks will go up in the morning. Because of this, closing time is an opportunity for investors to sell high.
2. Maximize Your Gain By Watching The Band
If you’re trying to benefit from a volatile market, it’s best to keep your eye on the trading bands. A band is representative of the range of prices a stock has sold for over a period of time. Obviously if you’re inexperienced or an average investor you don’t want to take huge risks. But, you can still keep your eye on well established brands to see which have a wider band. The wider the band of a company, the more opportunity you’ll have to buy stock low and sell it for a nice profit.
3. Watch The International Markets
If you’re curious as to how the US market will open, pay attention to the European and Asian markets that operate in different time zones. By monitoring the international markets you can get an idea of how the US market might open the next morning. This is extremely useful information that can help you construct a strategy for your own trades.
4. Watch What’s Happening In Your Companies
Keep on top of the companies you’re investing in, and those you want to invest in. It’s possible to predict future developments in the stock market just by looking at company announcements, launches, and competitors coming into the arena. This will allow you to strategize the potential best times to buy and sell stock. For instance, it’s possible to see a launch coming up, buy stock, and then sell it back on the day of the launch to make a profit.
5. Watch Pre-Market Prices
Watching pre-market prices can help you determine how a day of trading will go. You’ll find these prices come out just before opening, and they can help you confirm your strategy for the day. One way of using pre-market prices is in conjunction with international markets. If US market prices are similar to international market prices, there’s a good chance the stock will act as predicted. If the pre-market prices are not corresponding to international markets, or what you’ve otherwise predicted, it’s best to wait.
6. Move Fast
While you should never make a move on a single market report, if multiple sources start reporting the same information about a stock, act quickly to buy or sell before others have a chance to react. Obviously this won’t apply for long-term investments, but it’s a great way to make a quick income in a volatile market.
7. Limit Your Trades
Almost all self-serve online brokers have some sort of limit feature which allows you to set a maximum price that you’re willing to pay for a stock. This feature can help you manage your trading so that you don’t buy too soon (before the stock hits the floor). To use the limit feature, set your price 4% lower than the trading price. If the price goes down and you think it will keep going down, change the limit order and decrease the price further. If however the price begins climbing, you’ll be able to jump in and buy at a higher, yet still profitable price. This will help you combat risk in volatile markets while still seizing opportunities to increase your profit.
While it may be tempting to avoid the stock market during times of turmoil, hopefully these 7 strategies have helped change your perspective. After all, watching and participating in the market in spite of the volatility is one step in making the world safe for profit.