The global economy is in unprecedented territory as we ease toward the middle of 2020. And for women looking to invest — particularly if it’s for the first time — this has introduced a whole new level of uncertainty. The simple truth is that investment of any sort may simply seem like a riskier prospect than usual until major world economies get back on their feet.
However, in looking to build up a portfolio and prepare for the next crash, there are some things you can do to prepare yourself for a difficult investing climate. And one is learning how to recognize and assess market volatility.
These are a few things to keep an eye on in order to do just that.
Major trade disputes, or even simple trade negotiations, can cause volatility in related markets in a fairly direct manner. And it so happens that we have a recent example of this happening. Just last year, a piece about volatility in the Hang Seng Index cited the U.S.-China “trade war” as one of the factors influencing market forecasts and leading to uncertainty. The fact is, when influential countries are negotiating trade policies or working through differences, investors are unclear as to what the outcomes might be. As a result, they aren’t always sure where to put their money, or whether to withdraw it altogether. And this sort of uncertainty breeds volatility, or at least markets that are decidedly more difficult to predict. Thus, keeping an eye out for trade disputes or other geopolitical conflicts can give you a heads up to possible market turmoil.
Perhaps the most convenient way to measure volatility is to learn to read the volatility indexes that exist in part for that purpose. Arguably the best known of these is the VIX (Volatility Index Futures), which measures expectations of stock volatility in the U.S. markets. Specifically, it measures 500 stocks so that when the index goes up, it is indicative of investor predictions that the market as a whole will be moving more frequently and/or unpredictably.
And, while the VIX may be the most commonly cited index of its kind, there are similar indexes for Asian markets as well. Depending on where you’re investing, any of these can be worth getting familiar with in an effort to gauge the markets.
If you’re more interested in measuring the volatility of a single asset — be it a stock in the HSI, a commodity like gold or oil, or even a forex pairing — you may want to learn how to calculate the ATR or Average True Range. This can seem complicated at first, but it’s ultimately a fairly straightforward tool.
Basically, it is an exponential moving average of what is referred to as the “true range” of a given asset’s performance. The only trick is in determining the true range. Properly done, it should be the greatest absolute value (meaning simply the number of the difference, whether it’s positive or negative) out of the following three: the asset’s high minus its low for the current day; the asset’s high for the current day minus its closing point for the day before; and the asset’s closing point for the day before minus its low for the current day. From there, you can plus a true range into an ATR calculator to get a sense for how volatile the asset is.
This final idea relates somewhat to the first one, about being mindful of trade negotiations. More broadly though, you can also anticipate volatility to some degree by keeping an eye on financial policy rollout relevant to wherever you may be investing. As an example, China’s market turned subdued for a time in 2019, specifically due to the fact that investors were awaiting policy decisions from government regulators. Inflation was on the rise, and while it was known that policies to curb that inflation were being discussed, details weren’t known yet.
Thus, investors held their ground, putting off decisions until policies were made clear. This doesn’t always work the same way, but generally, if you stay aware of economic policymaking — knowing when new actions are needed, when they’re under consideration, and when they’re rolled out — you may be able to predict market volatility to a degree.
No market is entirely predictable, and as a result, turbulent movement can catch even the most seasoned investor off guard. There is no way to know for certain how frequently or abruptly assets might move. Learning to anticipate and recognise volatility can be an invaluable step toward becoming a savvier investor though, and with these ideas and tools, you can make progress in this area.Recommend0 recommendationsPublished in