How to Trade When the Market Gets Volatile

How to Trade When the Market Gets Volatile

Turning a profit in financial markets requires price movements. Luckily, price fluctuations are constant, although they vary in speed and direction. How fast prices change and the differences therein is known as volatility. When volatility is high, there’s an increased potential to turn more profits quickly. Unfortunately, this potential to make more comes with a higher risk. Without a solid strategy, you can lose your capital in a short time. 

Fortunately, we’ve compiled a short guide detailing how traders should handle volatile markets to prevent this. 

Set objectives

Before you decide to trade a volatile market, it’s crucial to determine whether you are tactically and mentally prepared. This means understanding the risks and choosing the best broker to maximize your potential while trading in a volatile market. For instance, helps you identify top brokers approved by experts. 

Uncertain times in the financial market lead to widespread emotional trading, which renders most conventional trading rules ineffective. But instead of disregarding the rules, make adjustments. For instance, start by widening your stop loss placement to ensure you are not stopped out of a trade early.

But this doesn’t mean you pick your stop losses randomly. On the contrary, look for strong resistance and support levels for your stop loss placement to increase your confidence in trading a volatile market. 

Always stick to the plan

Traders who’ve had success trading volatile markets are pros in keeping emotions out of their trading moves. It may sound easy, but it’s not. Highly volatile markets easily lead to dynamic errors either from panic or excitement. So, once you have a trading plan in place and you’ve opened a position, the goal is to monitor it closely and stick to the trading plan. 

Keep an eye out for trending stocks

Some stocks still trend strongly in a volatile market but with higher risks. For buyers, the goal is to find a stock that’s trending high but whose advance rate hasn’t accelerated. On the flip side, a short seller should find a declining stock that hasn’t collapsed yet. Again, the goal is getting in before a price collapse or acceleration. 

Watch for breakouts

Buying a breakout is a popular trading method in volatile markets. Traders monitor stocks that are currently trading within determined resistance and support ranges. The trader doesn’t act when the stock is within the determined range. But once the price breaks the consolidation, they buy the stock hoping that the breakout is a beginning of a new cycle for the stock. 

Adopt short term strategies 

Through short-term strategies, you’ll lock in or take profits faster than usual. For instance, let’s say a trader buys a stock when it breaks its resistance in a regular market. Usually, they’ll add a stop-loss of Y% below their entry price and wait for X% profits to accrue before they set a trailing stop. The set trailing amount will follow the price as it moves down or up for buyers and sellers. As the stock price increases, the trailing stop also rises, allowing the trader to profit big when they sell. 

However, in a volatile market, profits can transform into losses suddenly. As such, you should make some adjustments to accommodate faster exits:

  • Determine your target for percentage profit
  • If the price rises fast, consider selling some positions and holding the rest as you wait for more profits
  • Set a trailing stop sooner than usual

There’s no shame in waiting

If you are unsure of the market’s direction, you can watch by the sidelines. Market volatility isn’t permanent, and often they are short-lived. Nevertheless, trading could be your best strategy yet, and a thorough market analysis is crucial. As you wait it out, learn more about trading and how to improve your technique. Most importantly, find a regulated broker for secure trading activity.

Leave a Reply

Your email address will not be published. Required fields are marked *