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Stock traders want to buy stocks when their values are low and
sell when their values are high. The distinguishing characteristic of stocks is
their potential to change in value in ways that can be hard to predict.
A stock that is
likely to have great or fast changes in its value is called volatile.
Volatility gives stocks the capacity to have high returns if values rise, but it
can also make stocks a risky investment if you can't sell them before they fall.
Volatility is a major key to investment strategy.
Blue chip stocks, a term for the stocks of older,
well-established companies with strong track records, tend to have low
They are likely to pay dividends and to grow steadily, if slowly,
in value. Because of their low volatility, you often have to hold these stocks a
long time to enjoy large value gains.
Highly volatile stocks—for instance, those of new companies in
hot industries—have appeal to short-term investors. They watch for stocks that
they think they can buy at low prices and sell relatively soon when the values
grow. They have no real way to be sure this will happen, however, so while
volatile stocks have the potential for high and fast returns, they also present
a greater risk of losing your money.
You now have a good foundation in how stocks work. Let's