If you are someone who is very active in the stock market, you probably wonder what makes a stock price so volatile during the trading session. A lot of times it is a natural behavior of buyers and sellers deciding it’s the right time to get in and out of stock. But many times, the short term volatility can be explained by a lot of the content that is being put out by certain news outlets regarding a company, and how investors choose to react to it.
The reality is that a lot of these companies are under constant scrutiny in the media world, and those who can create news for themselves will be subject to a lot of press. With that coverage, investors are free to react any way they choose while others may sit and wonder why a news piece could make them change their mind.
Either way, this volatility can be a blessing for some and a curse for others. What one investor sees as bad may afford another investor an opportunity to buy stock in a company at a perceived discount.
Sometimes news comes out that is not necessarily about a specific company, but rather an entire industry, which can send stocks within the entire sector up or down depending on the news.
Take a company such as Northern Oil and Gas, ticker symbol NYSEAMERICAN: NOG. This is a company whose fundamentals are pretty sound. But even if it is considered a good value trade, you will find that this stock’s price fluctuation is generally in line with how other oil and gas companies have been trading.
Whenever there was word of a possible gas shortage, the price went down. But when other oil and gas companies started reporting positive earnings, this company went up even before it reported its earnings.
Sometimes stock may move not necessarily on company news, but rather a news outlet’s pick based on their reputation. Anyone who is an avid follower of a news outlet’s stock picks may be ready to jump on a stock based on recommendations. It may not always be a guarantee that these publications can result in a positive move in the market, but they usually don’t go unnoticed and play at least a minimal role in the decision-making of the value of the stock for that trading day.
It’s important that if you trade stocks on your own as a retail investor you keep a good eye on your investments. While putting money into a mutual fund means you don’t need to worry as much about individual stocks, it is the responsibility of the fund manager to keep an active eye on news and price volatility, and be willing to make a decision based on some of those outcomes. Some view a price drop as a justifiable reason to sell, while others may see a price drop as an opportunity to buy into weakness and own more shares of a company as a discount, with the belief that the performance shall continue.
Therefore, it’s important that if you decide to manage your own portfolio that you wisely do the same. There are plenty of ways to monitor this. The easiest way is to log into your brokerage account and keep your portfolio up to see how the price fluctuates.
If you like to set limit orders, you can set up prices to buy and lock in if there is a belief the stock may approach that price tag. Alternatively, if you like market orders, you wait for an opportune time to buy the stock at potentially the lowest price. It is recommended sometimes to buy market orders during the end of a trading day when there is less volatility and a smaller queue of trades.
If you don’t want to be logged into your brokerage account or won’t have access to a computer, you can also create your own watchlist through a source that tracks stock price. You can use Google Finance or Yahoo Finance. To create your own personal watchlist of all your holdings. That way if you can’t access a computer, you could at least have it tracked on your phone.