Investing Strategies for a Volatile Market.

• Author: LIZZIO, JOSEPH P.
• Position: Brief Article

BIG UP AND DOWN MOVES in the stock market understandably make many investors wary and uncertain. What should you do in volatile times?

First, put market volatility in perspective. Swings in the stock market over a few months or even a few years should not affect a long-term investment strategy. Historically, investing over the long term tends to smooth out the bumpy rides that occur over shorter periods.

The key to keeping short-term volatility in perspective is to review your overall asset allocation strategy periodically, including your long-term savings goals. A proper asset allocation strategy, which takes into account your time horizon and risk tolerance, should factor in periods of market volatility. Bear and bull markets are part of the overall history of the economy. If you have a plan in place and learn to expect both kinds of markets, you can take the good and the bad in stride and know that you are indeed an investor for the long term.

Technical analysis

You probably have heard the terms "technical analysis" or "charting" as methods of evaluating the stock market. This approach proposes that previous price movements, properly interpreted, can indicate future price patterns. When combined with sound fundamental analysis based on the company's underlying balance sheet and income statement, technical analysis may help investors make wise stock decisions.

Technical analysts use charts or computer programs to identify and project price trends in markets, securities, or commodity futures. Most such analysis is done for the short or intermediate term, but some technicians also predict long-term cycles based on charts and other data. Unlike fundamental analysis, technical analysis is not concerned with the financial position of a company. When viewing charts from the technical perspective, analysts usually check the following six factors:

Moving averages. A stock price chart normally includes a moving average line, which is calculated by dividing the sum of the closing prices by the number of days in the average. Technicians then check to see if the stock's price has moved above or below the moving average line, often viewing a move below the average as a sell signal, while a move above the average frequently is considered a buy signal.

Momentum is the rate of acceleration or deceleration in price or volume of a stock. When a stock begins to rise rapidly, technical analysts often feel that it has more upside potential. When upward...