“Volatility generates breaks, opportunities, and occasion, only for those traders who rationally knows how to deal with this.”
Trading in the volatile market is the indication of trading the fluctuation of the financial instruments. The traders do not worry about the movements of the prices who knows how to deal in the situation of high volatility and low volatility.
| Volatility = How much the price of an instrument will move in the future. |
Volatility evaluates the price movement or price change over a specific period. When volatility prevails in the market then it means that in a very short timeframe, prices are going to fluctuate. While when the change in prices is very low then this is a non-volatile market.
Trading Volatility
Volatility describes how quickly and how much the price of a security or market index has changed. Volatility is linked to risk as normally the more volatile and an asset is that risky it is for a trader.
Simply, volatility shows up and down movements in the market.
For instance, you assume a stock at one price but over a period, it drastically goes up or down. Like if, the price of a stock is $50 and after sometimes it moves up to $80 or moves down to $30 then this up and downs in prices is called volatility.
Calculating as a standard deviation from the expectation such movement reflects volatility.
High volatility
A position, which goes through remarkable changes in the value, then this position is considered highly volatile. It brings uncertainty but it generates higher profits as well if you are willing to take high risk. Because if there are high profits then there are high risks as well.
Low volatility
A position that is stable and not changing over some time. This may result in a very slight or no change. Thus creates low profits as compared to high volatility.
Tips For Trading In Volatility
Observe the situation of the market
There is no harm if you will observe the market situation and its trends, as it is volatility in the market, which is out of the normal trading routine. In this either situation most of the traders step back or use the same trading strategy without observing the ups and downs of the Forex market and thus lose lots of their money. Therefore, what you need to do is, take a step back and observe the trends, let the market flow in this volatility, and then review it. There is no harm in preserving your capital investments instead of doing bad trade in the volatile market.
Spend more time in planning
Always consume your time ineffective planning, but the extra hours in your planning. Take more than half an hour in your planning process where you think, it is necessary because the swings are more magnified, everything is moving and everything is on the edge. There is shifting in the market as people are coming with more stop limits or orders and the market is shaking. So spending more time in the planning process and take care of your trading.
Reduce the size of your trading position
This is obvious, if you are a new trader and you are trading for a while then you would not like to risk the specific amount of your money in this volatile market. And if the volatility gets double like if high volatility is prevailing in the market then with your heavy position size the stops will be twice as large following your position size. So a general rule of thumb here is to observe the trends, volatility of the market and then manage the size of your position according to that.
Risk management
Keep this thing in your mind that risk is everywhere and you need to understand the risk of each trade. By keeping records of all of your trade entry and exit strategies, you know your expected returns and then you need to make a comparison and evaluation of your trades. When there will be high volatility. All you need to do is, put down the size of your trading positions and advantages as discussed earlier.
Use stop limits
At all the time, have very strict stop-loss limits because if you combine it with the seduction of volatility then you get into the market and you see opportunities along with swinging. After seeing the opportunities, opportunities, and opportunities in the highly volatile market, you would go for investing a huge amount but this is the right time to have strict stop limits because if there are opportunities then there are heavy risks as well.
“A successful trader greets the volatility but rationally because if volatility brings a bunch of opportunities for you then it brings a river of risks as well. It is an indication that people have no awareness of the basic value.”
