How to trade in volatile markets
Trading volatile markets
No matter how long you've been trading Forex, your feelings towards market volatility have probably not changed much from when you were just starting out.
Typically regarded as something to avoid at all costs, traders often abstain from the markets during times of increased volatility out of an overwhelming sense of fear.
Those with an increased appetite for risk, however, might find themselves more excited and inclined to trade during periods of higher volatility. While these two types of personalities may seem to be opposites, they are more similar than you think.
Psychology claims that the feelings of fear and excitement are, in chemical terms, the exact same thing. The same chemical reaction taking place within our mind can make itself known as gut-wrenching fear, or an exhilarating thrill. Individuals can learn to master their emotions and train their mind to interpret adrenaline differently. Once a trader understands this, they become unstoppable.
Of course, turning the fear one feels towards volatility markets into
excitement is easier said than done. This is why we put together a few tips to
help you take control of volatile markets, spot opportunities to profit, and
overcome your fear.
What markets are most volatile?
Market volatility is a characteristic that exists within all financial
markets, to a varying extent. Cryptocurrencies are highly prone to volatility,
which is why coins such as Bitcoin can swing from $19,000 to $22,000 in a
matter of minutes. The Forex market can also become highly volatile,
particularly during the overlap between major trading sessions. Since Forex
prices are heavily influenced by breaking news stories, extreme volatility can
also emerge out-of-the-blue, so traders should always be prepared.
Be Prepared for Market Volatility
When traders realise the opportunities that can be found within large
market swings, it's easier to turn market volatility in their favour. Still,
there are a few things to keep in mind to avoid getting swept away. Benefit
from trading during periods of volatility with these tips:
- Trade CFDs: Unlike traditional trading, CFDs allow traders to benefit during both bull and bear markets since one can open both 'long' and 'short' positions.
- Widen your stop loss and take profit targets to avoid exiting the trade too early. A volatile market may run for hundreds of pips in either direction before switching direction, so widening targets will enable your position to last longer and turn a profit.
- Minimise losses by focusing on current market movements; if a market is moving chaotically within a smaller price range, you may be better off tightening your take profit and stop loss before the price breakout.
- Look at the overall picture to avoid short-sightedness. While a market may
be experiencing high volatility, looking at price movements over a longer
period can help you understand the overall price support and resistance levels
of the asset.
Once you've mastered these skills, you'll never need to fear a choppy
market again. Sign up to LonghornFX to start trading with up to 1:500 today at www.longhornfx.com!