How To Make Money investing In A Choppy Stock Market


If you are looking to make money in today’s stock market, then you are going to need to get a bit more creative than you have needed to be in the past. During the 1980s and 1990s, it seemed as if any fool could make money in the stock market, and a lot of fools did. Any monkey could have thrown a dart at a newspaper and invested in any random stock that his dart happened to hit. Since the market just kept going up, it was even easier to make money by leveraging and buying stocks on borrowed money. Unfortunately, from 2000 until 2010, the market has bounced around quite a bit, but overall it has remained essentially flat. The Dow Jones Industrial Index, one of the most popular barometers of the stock market, has reached as high as 14,000, only to crash as low as 6,500 a year or two later. How is anyone supposed to make money in a market that is so unpredictable?

There are many methodologies for attempting to make money in market conditions like these. Some people love one particular method, while deriding all others. Other people try to use a combination of two or more methods. Still others can see the value in each type of methodology, and they try to apply each method in the circumstance that they deem most appropriate.

The first methodology is sometimes known as value investing. This method was largely developed by Benjamin Graham around the time of the Great Depression. Many mainstream financial advisors have stated that his methods are outdated; they were only useful in a market environment much different than today’s market. However, as the economy begins to display more and more characteristics that are reminiscent of the Great Depression, perhaps value investing will once again get its day in the sun. This method advises investors to carefully analyze the financial statements of the company underlying a particular stock. The investor looks at the income statement, balance sheet, and cash flow statement. He then decides how much that company would be worth in the real world. Then he looks at the stock market to determine whether or not the asking price is higher or lower than the price at which he appraised the company. The idea is to buy stocks when they are trading at less than their real value. Once the market has brought the stock price back up to a fair value, the investor may sell the stock and buy another one at a discounted price.

Another popular methodology is known as technical analysis. Practitioners of technical analysis analyze aspects of the actual stock trading on the market. They look at things like supply and demand pressures and the relative number of trades that occur each day. They sometimes look for telltale patterns which may indicate that a stock may go up or down in the short term.

A third method for investing in stocks in a choppy market is sentiment analysis. This strategy consists of measuring the optimism or pessimism of market participants about current or future market conditions. It seeks to analyze the overall psychology of the market. They often rely on surveys which asks investors which direction they think the market is going to move in the short term. The strategy amongst sentiment investors is often to do the opposite of what most people believe is going to happen. When most people think that the market is going to fall, then that may be an indication that many people have already sold their stocks, which means that there may be some near term buying pressure.

Dividend investing is another type of strategy that may be useful in a choppy market. Rather than trying to predict which way a particular stock or the market as a whole is going to move, you might simply try to invest in stocks with a high dividend yield so that you can earn a bit of income until conditions improve.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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