Very few things in life stay the same for too long and you can certainly apply that philosophical view to financial markets, where there is often a snooze-you-lose mentality pervading many trader’s thoughts.
The way silver prices are currently reacting to market conditions is a case in point, and you can read the full article on MoneyMorning.com to get the lowdown on that situation. Volatility in many different markets is often only a breaking news story away. So, how do you successfully ride the Wall Street wave?
Timing the market dips
Volatility can bring trading opportunities, but if you want to know how to time the market dips successfully, the simple answer is that you shouldn’t even try, unless you plan to relieve your bank balance of a few extra zeros.
You might get lucky and execute the perfect trade, buying at the lowest entry point and then watching the stock price climb again shortly afterwards, but the point about timing the market dips, is that much of what you achieve will be down to just as much luck as judgment.
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The investing mantra that you would do well to keep in the forefront of your mind every time you are tempted to profit from a breaking news story, is that in the long-term, consistency over immediacy will give you a much better survival rate and allow you more chance to post solid gains.
Look beyond the headlines
Your emotions can get in the way of a lot of things and stock market investing is an activity where your emotional reaction to a negative headline, could end up costing you dearly, which is why it often pays to look beyond the headlines.
The general advice from many investment gurus would be that investors should rarely allow their emotions to dictate how they respond to what can sometimes be dramatic short-term movements in the market.
We have all witnessed the ensuing panic when markets start to tumble and many investors seem to be heading for the exit, causing a widespread sell-off. These short-term losses are only paper losses and you always have the opportunity to sit tight and allow prices to recover, but if you hit the sell button, you are crystallizing that loss immediately.
The lesson to take on board is that it often pays to take a longer term view with your investment decisions, and if you believe that you have got the fundamentals right in the first place when first making the investment, stick with it and ride out the storm.
One of the most famous investors of all, Warren Buffett, holds on to stocks for 20 years or more, having made a decision to invest, so invest consistently and for the long-term, more than paying attention to a headline, despite the fact that it might be sending your stocks down in price in the short-term.
Understand your investor profile
We all have different personality traits and therefore it makes perfect sense that no investor is completely the same as another.
You might be a nervous or analytical investor or you could be someone who loves the challenge of volatility and is not afraid to take plenty of risks. Knowing what type of investor you are and playing to your relative strengths and within your own comfort zone, is a fundamental key to coping with market volatility.
If you happen to fit the profile of a buy-and-hold sort of investor, then short-term market volatility should not really concern you, and it is simply a case of making your way forward without being heavily influenced by what is happening around you at the present time.
If you have a high level of risk-tolerance, you might be excited by market volatility and view it as an opportunity to find some bargains when you believe prices have gone lower than you think they should have.
Have a plan and stick to it
It is very easy to get distracted by events and this can sometimes cause you to lose sight of your core investing principles and strategy.
The best way to cope with the inevitable waves of volatility that tend to hit different financial markets on a frequent basis and for varying reasons, is to develop a trading plan that works for you and fits your investment goals and risk-profile.
In times of turmoil, simply refer back to that plan, see where you are and then simply keep steering the same course with your money, rather than reacting to short-term volatility.
Historical records support the suggestion that it is often better to ride out the waves rather than react to them, with many investors generating better returns overall by simply staying invested through the rough and the smooth.
Kristin Witkowski has been trading stocks and shares for several years and has just started to share her extensive knowledge to help others who are just starting out with trading.