Stock Volatility

When examining the stock chart patterns of hundreds of high quality, similarly profitable companies, you would notice that most move up and down regularly, if not predictably, with an upward long term bias, and that there is little, if any, similarity in the timing of the movements between the stocks themselves. This is the “stock volatility” that most people are afraid of and that Wall Street loves them to be afraid of.

It can encompass practically everything or be narrowly confined to certain sectors, it seems that either can be the case. The broader it becomes, the more likely it is to be classified as either a correction or a rally. Most of the time, there will be one or two of each in any particular year. This is considered normal in the stock market community. Don’t take it for granted when it goes up, and pay close attention to it when it goes down. Learn to live with stock volatility in the uncertain times, work with them in whatever direction they move, and you may eventually tame the beast!

It may come as a surprise, but it is this natural stock volatility, caused by hundreds of variables political, economic, natural, or human greed and fear, that is actually the only real “certainty” that exists in the financial markets.
Call it foresight or hindsight if you want to argue the point, but a view of fundamental and technical analysis in the longer term removes any guesswork and indicates fairly clearly a trading mentality that keys on the natural stock volatility of hundreds of equities. During corrections, consider these simple facts:

1) Don’t be in a rush to fill your portfolio, but if cash dries up before it’s over, you are doing it “correctly”.
2) Steep and fast corrections are better than the slow attrition variety.
3) Always accept even half your normal profit target while buying opportunities are plentiful.
4) When everything is down, don’t worry so much about the price of individual holdings.
5) Although the sellers outnumber the buyers, the buyers intend to make money on their purchases.

Volatile markets create opportunities with every trend change, but you have to be willing to buy or sell to get the benefits. It is necessary as a first step to realize that both “up” and “down” markets are forces with great potential. A proper attitude about the “down” markets will make one appreciate the “up” markets even more. Most stock market strategies demand answers to unanswerable questions, with an attempt to be in the right place at the right time.
Uncertainty regarding decision-making isn’t going to work. To be a successful trader, investment strategies require an understanding of the disciplined rules of portfolio and money management. Transitioning back to individual securities help you move toward your goals. Most of the time, the opportunities are out there. You just have to recognize them when you see them!

If you will learn to live with some new stock investing concepts for dealing with this investment game and its stock volatility, and can live in harmony with them for a few cycles, you will soon be buying good stocks, both old and new, at lower prices during corrections, and take reasonable profits on.

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