Six ways to earn big during market volatility
Periods of market volatility leave feelings of unease, but there are several ways you can still profit. In this article we look at six ways you can earn during market volatility.
Volatility doesn’t mean stationary, and if there’s movement in the market, there’s an opportunity to make a profit. The only thing that changes is the risk level, the overall value of the market, and the frequency of price shifts. To help you navigate the choppy waters of volatility, and earn big along the way, we’ve put together this short guide.
1) Have the correct mindset and do a risk tolerance review
Before you begin making trades during volatile waves, it’s essential to prepare yourself mentally and put a plan in place. You first need to be 100% sure that you’re ready to trade during high volatility, which means recognizing the potential for considerable losses.
Once you’re in the right state of mind, it’s time to take a look at your current risk tactics. There are many ways to manage risk during a volatile market but stop-loss and portion size are the most popular. When you’re making volatile trades, keep it small and set wider stop losses – you don’t want to get caught out by a lower-than-usual price swing.
2) Look for trending stocks
Even though the market is volatile, stocks still trend as usual, with the fluctuation of value being more frequent and wider. One of the best ways to earn big during a volatile market is investing in stocks that haven’t had their initial boost in price, meaning you can ride the wave and make a profit. However, you need to be quick to withdraw because profit can turn to loss quickly during volatile markets.
3) Consider short-term tactics
If you favor long-term strategies, consider exploring short-term methods during times of market volatility. A short-term method involves buying a breakout stock, placing a stop-loss, and then waiting for a small profit. Using this strategy means you’ll make more wins often, which will add up to your large profit pot.
When you’re trying to use volatility to your advantage, you need to be aware of the beta value of each stock. Beta refers to the amount of movement a stock currently has. Typically, the higher the beta, the higher the risk, but the higher the profit. Naturally, these stocks can bring high returns on a short-term strategy.
4) Buy on the breakout
When a stock moves above the resistance area, or below the support area, this is called “buying on the breakout”. When a stock breaks resistance, it’s indicative of an upward trajectory in price. Buying at this point can lead to enormous profits. Although breakouts in a volatile market typically point to an upcoming run of price increases, it can be a false breach – meaning significant loss is on the way.
5) Remember that defensive assets mean stability
Outside of searching for high wins with large risks, you should consider holding onto defensive assets. After all, a large part of turning any profit during volatility is risk management.
Defensive stocks are with companies in essential areas including healthcare, staples, and utilities. These assets are safe because they’re typically immune to wider volatility, owing to their essential status.
6) Get diversified
Traders diversify their markets to avoid having their eggs in one basket. However, market volatility can highlight cracks in diversity, leading to a need to revisit the portfolio. If you need help diversifying your portfolio during a volatile market, read this article.
Trading in a volatile market is always risky, but it canbring high profits when leveraged correctly. To get through any volatile period, it’s important to remember that a strong mindset is needed – an acceptance of risk will help to keep you moving forward in the face of loss.