Surviving Market Volatility: Tips for Traders and Investors | Espresso


A Complete guide for traders and investors for surviving market volatility

March 01, 2023
A Complete guide for traders and investors for surviving market volatility

Stock market investing may potentially be a good way to make healthy returns, more so if you have the patience and determination to stick around for the long term.

Most investors and traders come to the market after being wooed by the fast pace of the stocks – up or down a few percentage points everyday. If only we can capture this movement on the upside, they think, our job will be done.

But this volatility cuts both sides, and it is during sharp downside moves that newcomers realize that succeeding in the market is no child’s play.

If your portfolio has taken a hit in the recent market volatility, here’s what you should do.

As a trader

1) Keeping a strict stop loss

As a trader, it is imperative that you keep a strict stop loss to avoid large losses. Although your stop loss might get hit often in a volatile market, it will help you preserve your capital.

2) Avoid averaging down

Trying to catch a falling knife can do more harm than good. Remember, it is not possible for anyone to predict the bottom, not even experienced traders. Adding more quantities of falling stock just to average out your costs can lead to higher losses.

3) Be mindful of position sizing and the capital deployed

As a trader, you should keep a smaller position sizing and deploy lesser capital than usual during volatile times. This will help reduce the risk taken and preserve capital.

4) Take trades on the short side

If you are a trader with a high conviction about the market direction, taking a trade by shorting the market can help pocket some profit.

5) Benefit from using option strategies

If you are an experienced trader, you can make use of the volatility by deploying option strategies. This can help you earn profits even in a non-directional market.

As an investor

1) Stomach the volatility

As an investor, the first thing you should do while making investment decisions is accept the fact that the stock can tumble during volatile times and the fall could be as steep as even 20%. This can help reduce panic and fear that a sharp downfall will bring. 

2) Rejig your portfolio

Bull markets are often driven on optimism and can give birth to fad investments. Bear markets and deep corrections are a sort of reality check for investors. As an investor, you should take this opportunity to get rid of low-quality stocks and invest in good companies.

3) Reevaluate your thesis

As an investor, reevaluating your thesis on the basis of which you made an investing decision can help you in volatile times. The market conditions should be taken as an opportunity to gauge the intrinsic value of the stock. If your reevaluation suggests that your thesis still stands, you can consider adding more of the stock at a cheaper price.

4) Invest in quality stocks

In a bear market or during volatile market conditions, you should ask yourself if you would buy a stock at the given price or valuation. If the answer is no, you should exit from the stock and cut losses. Since market falls tend to be broad based, as an investor you should take the opportunity to add quality stocks at cheap prices.

While volatility can often cause fear and panic and lead you to make wrong decisions. However, whether you are a trader or an investor, you should focus on keeping a calm mind and riding out volatility while using the time to rethink your investment decisions and reassess your portfolio.

Disclaimer: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Please refer the Risk Disclosure Document issued by SEBI and go through the Rights and Obligations and Do’s and Dont’s issued by Stock Exchanges and Depositories before trading on the Stock Exchanges. Brokerage will not exceed the Exchange prescribed limit.

R. Kalyanaraman
by R. Kalyanaraman

Chief Executive Officer

I am a sales guy at heart with utmost willingness to listen to people – customers, employees, competitors et al. Nothing gets me a bigger adrenaline rush than an interesting conversation with my customer!