Market Volatility: Strategies for Success Using Stock Trading Apps | Espresso

Dealing Market Volatility With Stock Trading Apps

Market volatility is an intrinsic aspect of stock investing. Investors utilizing a stock market investment app, understand the necessity to navigate through turbulent market conditions. Volatility refers to the gyrations of the stock market. Market volatility is witnessed by most of the well-seasoned traders. But, it is a matter of concern for novice traders due to their rational fear of losing money. However, market volatility gives an opportunity to traders to proliferate from the fluctuations. 

Published on 26 January 2024

Need For Market Volatility

  • It provides bearish investors and short-sellers an opportunity to mint money in a declining market. 
  • Market volatility provides an opportunity to buy securities in a declining market to make higher profits in the future.
  • Downward market volatility allows investors who believe the market will supposedly appreciate, to buy favorable stocks in companies at lower prices.
  • Investing when markets are volatile and valuations are more attractive offers investors the potential to generate strong, long-term returns.

You will learn to tackle the stock market volatility using the following comprehensive strategies:

Strategies to Navigate Market Volatility

Control Psychological Fear

First and foremost is to learn to control psychological fear during market volatility. If you observe the VIX chart of the last nine years, you might see a down-graph. But in the interim period, there have been many occasions when the volatility has spiked substantially. The fundamental idea is to adhere to your long-term financial plan. 

Determine Your Risk Tolerance

Stock markets inherently carry risks and fluctuations in the value of your holdings. Traders should align their investment strategy with a defined risk tolerance. One should put a stop-loss order to manage the losses. Financial goals must be aligned with investment strategy before trading in the stock market. 

Diversify Your Portfolio

Diversifying your portfolio helps you to mitigate the impact of poor-performing stocks during market volatility. You can regulate your portfolio even when the market goes down by 30% in a year. 

You can diversify your portfolio in either of two ways:

  • You can diversify your portfolio by investing in different sectors in the same asset class. During COVID-19, sectors such as Airlines, Automobiles, Energy, Hotels, and Restaurants & Leisure were severely impacted. At the same time, Health Care Equipment & Supplies, Life Sciences Tools & Services, Pharmaceuticals, and Communications Equipment witnessed a substantial increase in the market. Thus, to effectively deal with market volatility, one must have stocks in diverse sectors.
  • Another way to diversify the portfolio is by investing in different asset classes. Rather than investing entirely in one asset, it is advisable to invest in multiple asset classes. Your investment should not entirely be equity-based but rather a combination of equity, bonds, commercial papers, G-Secs, Forex, mutual funds, ETFs, and sovereign gold bonds. Investment in three to four asset classes will help your portfolio in the bearish market.

Invest in Derivatives

Derivatives derive their value from the underlying asset (usually an index or a stock). Derivatives such as Futures & Options (F&O) are vigorously traded in the Indian stock markets. F&O are contracts between a buyer and seller to purchase a security at a predefined price on a predetermined date. Skilled investors look at futures and options as a low-margin alternative to cash market trading. Derivatives consisted of Call and Put options. If you are long in a stock, then you can buy a Put option, whereas if you are short in stock, then you can buy a Call option. This is an effective way to generate profit in both the bullish and bearish markets. 

Things to Remember

  1. Debt adds stability and the assurance of regular income. 
  2. Gold usually benefits from macroeconomic volatility. Increasing your exposure to gold via gold ETFs can be profitable in these volatile times. 
  3. Traders must learn when to buy, when to sell, and when to stay calm in the market. One should learn the basics of fundamental and technical analysis in order to make informed decisions. 
  4. You can seek professional advice from financial advisors. They can offer valuable guidance tailored to your needs and help you to navigate market volatility. Many stock investing apps provide comprehensive guidance to its users to help them in volatile markets.

One should understand that the market does not touch the peak every time but continues to fluctuate every day. Sometimes, the stock indices may go down by 30% in a year. Other times, it can jump again by 18000 levels. Dealing with psychological emotions is necessary in a volatile market. With time, traders have learned to make their portfolio green after 10-20% losses. If you are new to investing, look for the best stock trading app for beginners to consistently make informed decisions based on real-time data. 

Chandresh Khona
Team Espresso

We care that you succeed

Bringing readers the latest happenings from the world of Trading and Investments specifically and Finance in general.