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Pros Brace For Another Triple-Digit Day

Yesterday’s 423-point jump in the Dow Jones Industrial Average marked the first time in the 115-year history of index that it has moved in one direction or the other more than 400 points for four consecutive days, according to the Wall Street Journal. And money managers and advisers don’t think the wild ride is over yet. With the Dow up more than 100 points at the open, investors were girding themselves for another wild day.

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“Volatility begets volatility,” says Adam Grimes, chief investment officer at Waverly Advisors, in Corning, N.Y. “These things do work themselves out, but it would be more unusual for the market to go dead.”

In fact, investors should get used to these periods of high-volatility, experts say. They are getting more frequent: Short-term instability or the volatility of volatility itself has tripled over the past 40 years. As causes, experts point to several causes, including the increase in so-called algorithmic trading, in which trades are ordered by computers in high volume. The growing popularity of leveraged exchange-traded funds may also be a factor. The funds, which are designed to magnify the markets’ moves in any given day, tend to buy when the markets are rising and sell when they are falling, which can exacerbate gains or losses, according to the Journal.

Meanwhile, with the debt crisis in Europe and political brinksmanship stateside, there is no shortage of news events to push the markets in one direction or another. Given that environment, investors can expect to see big market swings for months, says Monty Guild, chief investment officer at Guild Investment Management in Los Angeles, Calif. His advice: “Be patient and wait for stocks to hit your prices, because you’re going to get them. Yesterday was not the end of the correction.”

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