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Volatility for investors

By this time, most of the mid-term (< 3 Years) active investments in equity markets (SIPs & Consistent Direct Equity) should have come back to break even or slight losses. (For the Mid January 2022 investors, in deep red.)

We all understand now, that when markets fall they fall quickly, and when the markets go up (unlike the 2020 rally) they take their own fancy time. The reason is that it takes one intangible force to bring the markets down (sentiment) and a combination of a tangible force and an intangible force (earnings & sentiment) to take the markets up and keep them going.

Lately, both investors and traders have to look at the charts. Gone are days when fundamentalists can execute strategies without looking at them. (The most common way of looking at these charts is in their candlestick forms.) Sentiment has become a major governing element of this highly liquid ecosystem. However, when we look at the charts in these times, don't they look so confusing? Like this one-



Or this one -





Gaps, wicks (shadows), alternate momentums, small swings. I am sure it is also giving a tough time to the technical analysts and traders to make sense of. The reason for these roller coasters in the markets is volatility. Here is what the measure of volatility, VIX looks like-



Now the question is, what should an investor do about these roller coasters? I would say sit back and relax, but I guess that's not what most of us would like to do. We want some action, so here we go-

1) Acknowledge the fact that there is nothing we can do about the volatility. So, stick to tangibles and ignore the intangible.

2) Realise that unless we are option writers* (which is a capital intensive, high risk, low return proposition) there is no other way to make money in these times.

3) Stop looking at the candlesticks and switch to a line chart preferably with a weekly view. This will help us focus on closing prices only and help us ignore the lows and highs. It will also reduce the factor of fear to a rational extent. Like this one -




4) Use VTC- valid till cancellation orders. Most fundamentally backed investors have a preferred price (or my price) to buy a business. using VTC orders to enter at a specific price just helps.

5) Take help from Techincal Analysis and identify a few supports, closer to the preferred price (my price). Wait for these levels to be tested and to be validated to enter businesses at amazing value points (for multi-year entries).


6) Do not exit great businesses in anticipation to catch them back when they are further low.


When the VIX is high- not just the fall, but the recoveries are also swift. Major pullback happens during a hot VIX period. Leaving the investors sitting on cash (expecting a better price) when the markets zoom up suddenly.

Illustration from the Feb to April 2020 fiasco.*








7) Start your accumulation process and keep it slow. Remember; The game is- hoarding large quantities for a day with a far better valuation, than the day of allocation. Simple.

Rough days, make tough investors. We are known, for how many cycles we have weathered. The current scenario is just a marginal addition to our experience and learning. It can also be a significant interval in history for the one, with allocatable cash and a focused wealth maximization journey.

All charts are from tradingview.com*

Thank You

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