Market Strategies for Trading in a Volatile Market

Trading in a volatile market can be very challenging, regardless if a trader is going long or short in the market.  Since the majority of investors are not actively trading stocks, they can often find themselves on the wrong side of the trade as stocks are pushed to their limits.  So, traders should focus on sound investment strategies to avoid being whipsawed in volatile markets, like the one we all experienced in late 2008.  Below are 3 basic market strategies an investor can use to protect their hard earned money.

Keep Some money in Cash


Many investors over the years forgot how important cash is to an investment account.  The recent upward moves in the stock market and real estate market have led to a feeling of false security when it comes to investing.  Many investors kept pouring money into their 401k retirement accounts, without even looking at their balance.  Now many investors that were 100% invested in the market find themselves with the same account value they started with 10 years ago. 

Sell the Losers


If a stock in your portfolio has dropped significantly, odds are you will not get back the majority of your money.  You could wait 15 years to get your money back and there is still no guarantee that will happen.  For example, traders who purchased Lucent Technologies are still underwater some 10 years later.  So, if you have a few losers in your account, get rid of them and put them in stocks that will work for you.

Focus on Quality Companies


Investors will often try to bottom feed during extreme bear markets or chase stocks that produce no real value in bull markets.  The key to avoid making these kind of emotional mistakes is to focus on companies that produce products of real value.  Warren Buffet once said the simpliest form for investing is to look at the products and stores you use on a daily basis.  You will be able to separate the household items that are required from those that are a luxury.  While these companies may not produce double digit returns, they will be more recession proof than others and often times provide a higher yield.
 
Tim Ord
Ord Oracle

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...

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