Safe-Haven Stocks to Trade During High Volatility
Haven stocks are stocks that are expected to retain or increase in value during periods of high uncertainty and are often referred to as protective or non-cyclical stocks. In periods of economic instability, this type of stock presents a decreased level of risk.
A stock market is a place where shares are bought and sold by individual and institutional investors. In recent times, this act of buying and selling is done electronically through major stock, indices such as the Nasdaq 100, FTSE 100, S&P 500, DAX. These indices represent the performance of a basket of constituent stocks.
However, it is essential to mention that the primary intention of defensive stocks is either to diversify the portfolio or to keep harsh market conditions stable. Nowadays, most of the ECN Brokers provide updated analysis to predict the market movements. Non-cyclical (safe-haven) stocks are often referred to as defensive stocks that give investors stable returns regardless of any market conditions. This is in contrast to cyclical stocks that are closely related to the current state of the economy and often take a dive when the economy does so. These stocks also thrive when the demand is thriving.
Some Popular Safe Heaven Stocks Are
Alphabet Inc (GOOG)
Zoom Video Communications (ZM)
One thing to note about defensive stocks is that they may stage an underperformance in times of expansion, but will always outlast every market storm indicating a non-cyclical approach. These categories of stocks can be classified widely under these 3 categories:
Consumer Essentials: This refers to consumer products which one can’t do without. At all times basic body hygiene products, food consumables, and beverages are always bought no matter the situation be its financial crisis, pandemic, socio-economic crisis.
Utilities: This refers to petroleum, water, light (electricity).
Healthcare: This is very important in any circumstance as it pertains to the essence of life.
Important Facts to Know When Trading Safe-Haven Product
As earlier stated, it is important to bear in mind that defensive stocks may stage an underperformance in times of expansion, but will always outlast every market storm so thereof their primary usage is during high volatility.
An outperformance during a market slump also doesn’t infer investors smiling away with skyrocketing profits. There are a few key facts to note when recognizing and trading this category of stocks.
1) Go for Big, Well Established, and Reputable Companies
Big, well-established companies that are well integrated into the stock market are great considerations for defensive trading products. This is so because people can vouch for them and express hopes in these companies even when the market performance is not up to expectations.
These products don’t plunge drastically when pegged to mid or small-cap shares. The key here is thorough research before committing to it. Examples of widespread trading products are Xerox Boeing and Apple. Apple is traded on the Nasdaq 100, Dow Jones, and the S&P 500.
2) Beta- This Implies the Coupling of the Stock to the Market
This is a very important consideration when choosing a safe-haven trading product. This is how it’s calculated:
beta value = 1 implies the stock price has strong ties with the market.
beta value > 1 implies the stock or security has higher volatility than the market itself.
beta value < 1 nearing 0 implies fewer ties with market volatility.
3) Dividend Yield
This is very essential as companies with a higher percentage of yield returns taken to be above six percent are excellent considerations for defensive trading products. These stocks will rather hold value in prevailing harsh market conditions.
The dividend is also essential as a steady channel of income plowed back into the company through a planned process called dividend reinvestment.
4) P/E Ratio
It refers to the measure in the ratio of a company’s share price to the company’s earnings per share. This is often used to ascertain the value worth of a firm. A higher P/E ratio indicates an overvalued company while a lower one indicates undervaluation. This is quite essential as Safe-haven stocks are relatively known for having low P/E ratios.
A trader can gain or on the contrary lose money by wagering on stocks or securities over a shorter timeframe. Most often, the focal point is on technical patterns using these two widely referred methods -scalping and day trading, often utilizing near term timeframes such as 10-minute charts.
With online trading platforms, traders can monitor the stock’s performance along with their entry and exit prices.
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The best place to approach trading or investing in stocks is via a trading platform/online brokerage account, which can be set up easily with verification of ID and an option of the funding process. Finding a low-commission broker is critical for more active traders as they would inevitably pay more commission than those trading at a lower volume.
MetaTrader 4 is a stand-alone online trading platform developed by MetaQuotes Software, widely known as MT4. MT4 trading offers links to a variety of markets and loads of different financial instruments, including currencies, commodities, CFDs, and indices. Downloading is free and gives you all you need to both study the markets and control your trades.