For most investors, a volatile market is what a roller coaster ride is to heart patients. However, one can considerably reduce the risks if certain points are kept in mind while investing in such a market.
Place stop loss orders: A stop loss order is a sell order kept with the broker to minimize losses. On giving a stop loss order, the stock gets automatically sold if the price of the stock dips to the sell price placed with the broker. Market experts advocate that always a stop loss order be placed under volatile market conditions.
Spot stocks that show strength in a falling market: Stocks that move up in a widely falling market are good picks, say analysts. "The market breadth is highly negative (more stocks decline than advances). But Nalco is one exceptional stock that has held up even in this falling market," says Guru Datta Dhanokar, a technical analyst and derivatives strategist with Almond Global Securities.
Avoiding leveraged positions: Do not bite off more than you can chew in a volatile market. Taking positions several times over the money one has got is a risky affair, as the investor will be required to cough up additional money if the price of the stock falls. If the investor fails to bring in additional (margin) money, the stock will be sold at the current market price, thus creating a loss for the investor.
Use drops to average your buy price: Do not worry if you have entered at the top end of the price curve. Use dips to buy more of the stock and thereby average your buy price.