Tuesday, January 31, 2017

How Volatility Can Help

"Buy low and sell high." ~ Wall Street Adage

Volatility can be painful as the market seems to gyrate up and down.  However, I have found that volatility can be helpful, both buying and selling.

First, when the market takes a short term downward move, I can use the opportunity to purchase core positions on my buy list.  Also, I can purchase additional shares of stocks we already own.  This will average down our cost basis.

Second, when the market takes a short term upward move, I can sell some of the additional shares of core positions purchased when the market turned down.   Doing so will lock in some profit and reduce our effective cost basis.

Of course, there are trading costs associated with this approach and the costs can be a high percentage of the profit for small trades.  However, I currently have some free trades with one broker, which allows us to ignore the trading cost impact in the short term.

For more on  Ideas You Can Use, check back Tuesdays for a new segment.

This is not financial or investing advice. Please consult a professional advisor.

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