For investors who survived the past two years, it will not be much of a surprise to learn that market volatility, as measured by the Chicago Board Options Exchange, has risen from a modest 16 to a little over 79, the highest level ever reached.

In fact, after the attacks of September 11, 2001, volatility jumped to just 33. They closed the markets as a result of the uncertainty! Today, the markets feel subdued, yet are registering volatility in the range of 30. This presents plenty of opportunity for investors to profit.

When taking a run at profiting from the markets, individual investors will only succeed when they are able to distance themselves from the emotion of investing. This is extremely difficult to do, however, and is why so many investors are gun shy and keeping their money invested in safer instruments. It’s not difficult to understand; we all work hard for our money and to see it erode in a market where we receive no tangible benefits is terribly difficult. Trading software that tells us when to buy and sell can eliminate this emotion as the software, like an investment manager, does not care that we invested blood and tears into our investments.

The second thing the investor needs to do is understand volatility. This can be done primarily by studying graphs on sites like Yahoo! Finance (type “^VIX” in the quote section) but also by realizing and appreciating the dictionary definition. Volatility is the rate of change in a price’s deviation from its mean. This means that the higher the volatility, the more quickly a price will deviate from it’s mean price.

Lastly, investors need is to hold back from being consumed by greed. This poses an immense challenge for most people as short-term gains often hint at larger longer-term returns. Trading system can help in this regard as well since they so effectively strip the emotion factor from any trade by focusing solely on statistical figures like volatility, momentum, relative strength and so on. Individual investors, on the other hand, focus on the potential of profit or loss.

In summary, by eliminating emotion and relying on technical trends investors can use volatility advantageously. Such volatility can allow for strong gains and returns when used properly. A trading system can assist to a large degree, but is not at all required for investors who can control their emotions and greed.

With more than 16 years of financial services experience, Chris believes that Dividend Funds are instrumental to proper Investment Management Strategies.

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