Five tips for trading in volatile markets
Trading opportunities are improved by a rise in volatility. The market fluctuates continuously which generates a positive mood for a great upward trend. However, there is also the possibility for significant losses if measures are not taken. When the market is volatile, adjustments regarding trading strategies need to be applied as the markets are uncertain. Read the advice below about trading in volatile markets.
Helpful advice for trading in volatile markets
1. Trade selections
Volatility of the market can cause one to take the risk in order to derive profits. Unprofessional traders can make a bad decision by making incorrect trading selections. If there are trading opportunities to gain a profit in a fluctuating market, there is also the possibility of acquiring losses. Do not place too many trades, but take into consideration the level of risk. It is important to consider financial and psychological levels of risk tolerance.
2. Trade with smaller trade positions
Leverages affect trading largely when the market is volatile. The degree of leveraging and position sizing should be considered even if you have the margin of 1% or half percent. Trade with an average of 1 lot position instead of 2 lot position since the possible loss of 100-200 pips can be made .
3. Discipline is the key to effective trading
Trade in a more disciplined way when the market is unstable. Maintain your trading strategy regardless of the market condition. Control yourself from making trading mistakes and avoid temptations. Follow the set stops, standards for risk management and the contingency plan with confidence. This will assist in deciding the level of risk.
4. Tighten your stops
Tightening stops can perform as great risk managers during periods when the market is volatile. Tight stops can safeguard the position of your currency. Consider placing stops with lesser pips. A break in stop indicates the possibility of a lower trend and tightening the stop can avoid a loss. The currency pair is the determining factor of the width. Traders will have wider stops while trading with Yen. Aim for 75 pip width stops instead of 100 pip.
5. Pull up your socks
It is essential not only to trade with currency pairs, but to adapt your trading strategy in the market situation. The trader should determine the reason for market volatility. Is the market volatile because of fear or is it the enthusiasm of buyers that is contributing to market optimism? It is the interest and excitement of traders that makes the market volatile. In addition, economic events can contribute to market volatility. The buyers and sellers of the market can evaluate the fundamental data differently contrary to new traders. Unusually, the markets can be sold off even when there is an increased growth in manufacturing, and the reason for such an uncertain situation is the market position that has altered. Market situations like this can lead to a profit as well as losses for the traders. Panic selling and panic buying creates negative trading circumstances in the market. These fragile situations might make you change your trading positions or make you regret stopping earlier.
When markets are volatile you are more susceptible as you may not follow your usual trading strategy. Therefore, this causes further panic in the market. However, traders who are lucky and more focused gain maximum advantage in volatile situations.