The volatility of today’s market can offer some very profitable opportunities to both new and experienced investors alike. Of course, the same volatility that creates the potential for high risk can also carry a lot of downsides. You have to be strategic about how you address risk while you’re investing amid choppy conditions. Here are some essential things to bear in mind about what you need to do to prepare yourself for risk exposure in the market.
Diversify Your Holdings
Going all-in on one or two equities can be iffy. Of course, if a single sector takes off fast then you’d be glad you did. Nevertheless, this is rarely how investing plays out in reality.
The most well-balanced approach to risk is to diversify what you buy. With this stance, hard times for one company or sector won’t mean the ruination of your portfolio. Also, you’ll be more likely to catch the next big wave when you identify advantages and try to foray into a few of the most appealing equities with room to run.
Watch Your Trades Closely
When you’re buying something that’s particularly volatile, you need to watch the price movement continually. Use real time stock charts to track how everything you’re holding is moving over the course of a day.
Ideally, you should also be checking on the bids and asks in the order book to see if there are any big buys on the board indicating that people want to get in. Likewise, big sell orders or “walls” may hold a share price back and even drive it down rather rapidly. You might also consider setting up alerts for price movement above or below a set price so you can evaluate the chart activity and make a timely decision about how to proceed.
Don’t Rely Wholly on Forums or Articles
In an unprecedented era of disinformation, the realm of trading and investing is certainly no exception. You have to do your own due diligence in deciding whether or not to make a purchase. You can’t exercise strong reliance on what you’re reading in trading group forums or seeing in articles that your platform has attached to a ticker. In fact, forums and articles often attempt to feature disclaimers emphasizing the importance of doing your own due diligence.
Always remember that the people writing articles about specific companies and even the people organizing groups often have their own agenda. In some instances, you may even see articles from investment research firms make the rounds with disclaimers that disclose their position. For example, short sellers will often circulate negative articles without substantive data because they are trying to drive down an equity’s price to improve their position. They include disclaimers acknowledging that they have a short interest, and they strive to avoid claims of defamation or libel with ironic disclaimers that they do not assert or guarantee the factual accuracy of the information in an article.
To be a successful investor, you have to be willing to take risks. However, you must also be pragmatic about how you manage them.
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