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This money-making tip comes from our Tech Expert, Michael A. Robinson:
This volatility will continue in coming months as investors grapple with economic data and try to gauge when the U.S. Federal Reserve will raise interest rates.
You can survive – and even profit from – market volatility using the five tools discussed below.
They'll keep you from making mistakes and help you navigate the volatility we're seeing right now.
And, in the long run, they'll help make you wealthy…
Five Tools to Help You Profit from Market Volatility
No. 1: Make Lowball Offers
It's a time-honored investment principle: Make your money when you buy, not when you sell.
With stocks, it's easy to make lowball orders. These are called "limit" orders, meaning you only buy when the stock hits your chosen personal target price.
Let's say momentum investors have piled into XYZ Software Corp., causing it to double in a short amount of time. Now, it's sold off a bit and is locked in a directionless, "sideways" market.
You want to buy the stock for the long haul: It has great financials, strong management, excellent products, and a strategically sound position in a growing market.
Suppose XYZ had a recent high of $100 and then dropped to $75. A lowball limit order of, say, $60 (a 20% discount) will protect your risk of losses and greatly boost your long-term gains.
No. 2: Buy "Test Shares"
The idea is to conduct a personal "reality check" for a particular stock. I recommend this method so you don't wind up sitting on the sidelines only to watch a desired stock run up before you have a chance to act.
Let's say XYZ Software is reporting earnings in two weeks. If the company beats estimates, the stock will soar. If it misses, the stock could get crushed.
Buying a few test shares is a great way to establish a position. As the term implies, you would buy only about 5% to 10% of your usual position on XYZ, using it as your initial entry point.
That way if it tanks, you won't get killed. You've only devoted a small amount of your risk capital to this investment.