Understanding Market Volatility

Wild market swings and stock price unpredictability can be emotional and difficult to watch, however market volatility is a completely normal function of the exchange system.

Put simply, market volatility refers to price movement.

On a stock exchange like the NYSE or Nasdaq, buyers and sellers connect for transactions. Every investor is familiar with the old adage “buy low sell high” and every investor is looking for movements in price to trigger transactions and measure growth (and losses).

Recognizing that emotions of fear and worry are a natural part of human nature, what can an investor do in extremely volatile markets to relieve some of the anxiety?

Let’s examine ways to measure volatility. Historical Volatility or “HV” is a statistical measure for any specific security over a period of time, capturing that security’s’ dispersion of returns. The calculation is generally capturing the average deviation from the average price. The higher the historical volatility the riskier the security. More common than HV is the use of standard deviation. Standard Deviation measures the amount of dispersion relative to the mean and is then calculated for a measure of variance. By measuring against the expected performance based on the dataset, Standard Deviation essentially becomes a calculation of the risk of an asset.

Sound technical? It is. Chart pattens and statistical indicators are used by Technical Analysts to study market historical prices and trade volumes. Combine that technical data with fundamental analysis of the companies and industries, and you get a picture of how comprehensive the research is that goes into asset selection and trading decisions.

Sound complicated? It is. Add in conditions like Historically High Inflation, Wavering Fed Policy, and Global Geopolitical Instability, and you can see why Wealth Management is not something to go alone or left to the novice.

So what’s an investor to do? Hire a professional. Find an advisor that has the sophistication and experience to provide the level of technical and fundamental analysis necessary to provide adequate advice and guidance for your specific situation. Work with an advisor that also uses Behavioral Finance Analysis to measure investor sentiment and market trends so that decisions can be made free from emotion and biases.

Remember volatility is normal.

Find a wealth advisor you trust to help you navigate volatile market conditions. Educate yourself so you’re not making an emotional decision that can impact your financial future.