(CNN) -- It seems every other day brings news of waves of selling by nervous investors. But for every seller, there has to be a buyer. So who's buying stocks when so many people are selling?
Investors who know what they're doing can take advantage of short-term market volatility, experts say.
"Who's on the other side? There's always someone," said Clifford Ball, an economist at Vanderbilt University in Nashville, Tennessee. "It's got to be hedge funds, large institutions and some investors who are thinking this is a good time to buy, at these prices."
Many average investors may be thinking stocks are cheap right now, but they could be in for a costly surprise, another economist said.
"Given that no one knows the depth of the current recession, and that investors are extremely risk averse and fearful during times of panic, it is a real possibility that stocks could fall considerably more," warned John Griffin, a professor of economics at the University of Texas in Austin.
Historically, stock prices don't rebound until investors can see that the end of a recession is in sight, Griffin added. Watch how the market shot up Tuesday »
"Stock buys today are reasonable bets for the longer-term investor, but investors should know that it is definitely not a sure thing," he said. "Investors with horizons less than a year or two should stay out altogether."
Small investors whom brokerages call "active traders" flagrantly ignore that advice. Sitting in their living rooms or at coffee shops, they buy and sell blocks of shares within a single day to take advantage of hour-to-hour price fluctuations.
"Clients look at that [volatility] and think to themselves, 'Wow, there's a means here for me to potentially take advantage of some quick opportunities every single day,' " said Jay Pestrichelli, managing director of the trader group of TD Ameritrade, a large retail brokerage.
TD Ameritrade investors -- including about 75,000 new ones -- poured $2 billion into their accounts in the first 20 days of October, he said.
Much of the action is in exchange-traded funds, which allow people to invest in an entire sector or a certain type of stock under a single symbol, he said. Certain ETFs allow investors to bet on -- and profit from -- a decline in a sector or basket of stocks. Watch how world currency markets keep investors guessing »
What that means, Pestrichelli said, is that if you're sitting at a cafe and decide the Standard & Poor's 500 Index is going to tank, you can click to buy shares of a fund that will go up if the S&P goes down. And voilà -- you've profited while others have lost.
Certainly, many investors are choosing to move their assets away from stocks and into cash products such as money market accounts and certificates of deposit.
"There's a greater percentage of our client assets in cash than we've ever seen before," Pestrichelli acknowledged.
If not handled properly, such decisions can be self-defeating, Vanderbilt's Ball warned.
"What the investor does is sell while the prices go low and then doesn't get back in until the prices are high again, so they lock in their loss and then they buy back at a high price," he said.
It doesn't make sense, he added, "but that's what people do, because they're afraid."
Taking a buy-and-hold approach carries significant risks and potential rewards.
"If you had a crystal ball and could know when the market is at its low, that would be the perfect time to buy and get the profits," Ball said. "But of course we can't know that."
During the late-'90s technology bubble, Griffin and his research partners watched as individual investors kept buying tech stocks as their prices continued to fall, thinking they were buying a bargain when in fact they were hitching themselves to an anchor.
"So institutions sold to individuals, [and] those individuals lost lots of money on those stocks as the prices fell by 70 percent in two years and never recovered," Griffin said.
But individual investors are more savvy nowadays, said Kim Hillyer, a TD Ameritrade spokeswoman.
"The retail investor is quite a bit more sophisticated than they were, say, 10 years ago when the tech bubble burst," she said. "They've learned a couple of things, and there's a vast amount of information and tools and services available to investors today to help them come to terms with what's going on than there was 10 or 15 years ago." Watch what financial news means for average folks »
Ball said investors who have time to let the market turn around should just sit tight and wait it out. People who are in or near retirement and whose money wasn't already in safe investments before the downturn don't have the luxury of time though.
"If you were, say, 65 and looking at your retirement and it's dropped 40 percent now, here's the problem: If you sell, if you move it into Treasury securities right now, it's gone," he said. "And then suppose after a year or so the market comes back and you're not in it, then you've done exactly the worst thing: You've sold at the bottom. ...
"The problem is for people who are older and don't have time to wait for the market to come back and are holding too much in stock for their age and risk aversion. I don't see how they can fix that."