Learn something new every day
More Info... by email
A choppy market refers to any period of time during which the stock market moves up and down often without ever keeping much momentum either way. When this occurs, the market has no real directional trend even as it moves rapidly back and forth. Trading in a choppy market requires gauging if individual stocks are pulled along by market momentum or if they show enough strength to stay strong even as the rest of the market fluctuates. Perhaps the best way for investors to deal with such a market is to ride out their positions until the market begins to move definitively in one direction or another.
Investors in the stock market must be aware of how to deal with volatility. Volatility occurs when stocks move rapidly up and down in price often over a relatively short period of time. While this condition can afflict individual stocks, it can also take hold of the stock market as a whole. When volatility in the whole market occurs for a significant period of time it is said to be a choppy market.
For the most part, a choppy market lies somewhere between a market moving in a positive direction and one moving in a negative direction, known as a bull market and a bear market, respectively. When the market is choppy, it moves up and down in short bursts, never too high or too low and never for a very long time either way. Just like choppy waters tend to buffet sailors this way and that, so too are investors pulled in many different directions by this type of market.
When investors try to find an individual stock in a choppy market, they should pay attention to the range of the stock's price. The range is the distance between the highest high price achieved by the stock and the lowest low price. Since a market that is choppy tends to keep stocks within their range, investors should be wary of an impending price change whenever a stock nears its extreme limits.
Another way to deal with a choppy market is to find stocks that tend to react as the market does. If this is the case, investors can buy and sell based on signals in the overall market. Other investors might want to stay out a fluctuating market completely, waiting for a time when the market settles on a clear course.