Take a look at the last few trading days and you’ll see that market volatility is back in a big way. Ever since the Eurozone fears started and the market plunged nearly 1,000 points intraday, investors have been quite skittish. As someone who has followed the market for years I can tell you that when this kind of trading gets started, it often takes quite a while before it quits. Plan for volatility over the next few weeks and months in the stock market.

While many investors are simply worried by volatility, it can be used as both a time to learn important lessons in the market and take advantage of opportunities available to you. Let’s take a look at the game plan you should have in volatile markets and how you can profit.

• Don’t make any split second decisions- Decisions made very quickly often come back to haunt you, especially when the market is moving so quickly. Buys or sells that weren’t thought out well are poisonous in this kind of a market. Plan ahead and be prepared well for what may come next.
• Make a stock shopping list- This is vitally important if you wish to profit from huge selloffs during market volatility. During volatile times there are bound to be huge down days, where you might find some of your favorite names down 20% or more in the period of just a few days. If there is no valid reason for this stock to perform this way, consider it a sale price on that stock.
• Pay close attention to trading actions- History often repeats itself in the stock market, so I like to tell people to pay attention to how the market reacts. Knowledge is power at all times, but that knowledge can help you even more in volatile markets where many others simply don’t understand what may be coming next.

Volatility in the stock market can be scary, but if you have a game plan it can help you be a step ahead of the pack!

2009 is going to be a difficult year. It may not be as bad as 2008, but still it’s going to be a challenging year. We witnessed sub-prime crisis, financial meltdown, Lehman brothers’ failure, Freddie and Fannie scandals, $700 billion bailout and Bear Stearns scandal – all in one year.

This year may bring more bad news for economy. One more bank may fail. There may be one more stimulus package. On the bright side, Obama administration may take bold steps to regulate the financial sector. Obama’s plans to create more jobs for Americans would work out well.

Individual investors like us should re-evaluate our goals. If retirement is your goal, you may have to work longer before retiring. If your 401k is just 40.1k, you have to re-think about your risk tolerance and portfolio allocation. We may not get much from fixed income portfolio this year because of near-zero interest rates.

If you are a short-term trader, keep your stop losses tighter. If you are a long-term investor, this may be the ideal time to invest in good stocks. Volatility will continue in 2009 also, so short-term traders should be aware of exit point before they enter any trade.

If you are a business owner, re-connect with your customers to make sure that their needs are fulfilled. You should also re-connect with your employees so that their goals are aligned with your goals.

Good Luck in making some money this year. Whether you are going to make money or not, try not losing your hard-earned money. Because money saved is money earned!

Related Link: Turn the page into 2009

While the word volatility doesn’t necessarily mean prices are moving in any one direction, the history of the stock market tells us that when the volatility index is on the rise, the stock market is typically not faring very well. Why is this? The basic answer to this is that the stock market does not like any kind of uncertainty and when there is a significant amount of uncertainty there is often a large amount of volatility as well. Uncertainty tends to lead to volatility and volatility tends to lead to lower prices in the stock market because of the fear of holding stocks as an asset class.

When is high volatility a good sign? High volatility in the stock market as measured by the VIX Index can also be the sign of a market bottom. When the VIX reaches level that were previously never thought to be possible it is one sign that the fear in the markets may be reaching the point where the bottom could be in quite soon. Fear in the market isn’t a good thing, but excess fear can lead to capitulation which washes out the system and helps set stocks up for a positive run.

What is the bottom line with volatility and the stock market? The bottom line is that typically volatility lends itself to lower stock prices because investors would rather be in a safer asset class, but when volatilty levels reach new highs an investor would be wise to expect at least a short term change in the trend of the market. As volatilty rises be prepared to take some money off the table, but as volatility levels skyrocket be prepared to dip your toe back in the water!