Finance Marketing Business

For anyone who has been invested in the markets over the past two years, it should come as no surprise to discover that market volatility, as measured by the Chicago Board Options Exchange, has risen from the range 16 to nearly 80, the highest level ever recorded.

To put that number into perspective, consider that after September 11, the index reached 33. Now, in the 30 range, the market seems subdued! Overall, however, 30 remains a high number as far as volatility is concerned and this is where many investors stand to profit.

For the individual investor, the first thing that needs to happen is to strip away the emotion from the investment. This is challenging, however, and for good reason. Most investors have worked extremely hard to build a nest egg, and watching a volatile market eat it up without providing any tangible benefits is extremely difficult to stomach. One solution is trading software, which is a lot like a money manager in that it does not know or care how many hours or sacrifices one had to make in order to save such a nest egg.

The second thing the investor needs to do is understand volatility. This can be done primarily by studing graphs on sites like Yahoo! Finance (type “^VIX” in the quote section) but also by realizing and appreciating the dictionary definition. Volatility is the rate of change in a price’s deviation from its mean. This means that the higher the volatility, the more quickly a price will deviate from it’s mean price.

The final thing the investor should do is control his or her greed. Again, this is difficult to achieve as short-term returns suggest longer-term returns. Again, removing the emotion of greed can be achieved by using trading software that measures concrete factors like volatility, moving averages, momentum, etc..

To summarize, taking emotion out of the investment equation and relying on technical measurements that give strong probabilities as to the direction of a stock, traders can use volatility to profit. Used properly, a trading system can assist with the emotional side of a trade and can provide strong signals for entry and exit points.

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