I’ve been meaning to write a post on how to trade volatile markets for some time now because I think the current market status really calls for it. I apologize for not having done this earlier but as the market seems to be getting crazier and crazier, this is still highly relevant for the present time.
You don’t often see the major currencies move back and forth with such speed. The Euro has had several days in which it moved over 1% in relation to the USD. This isn’t common and it requires some careful rethinking on the part of any Forex trader worth his/her salt.
Here are some of the steps you may or should take when presented with a volatile Forex market:
1. Don’t Trade - This is a perfectly reasonable decision to take. You don’t have to be in the market all of the time. No says you should. Taking a break is good for the soul and your mind so why not choose times of volatility and just take a break from Forex? There is no shame it saying to yourself: “Hey, this market is crazy. I’m staying out for the time being.” It may be the smartest thing you can do.
2. Trade less - If you’re going to be trading a volatile market, you may choose to trade with smaller amounts. There are two reasons for this:
- Less risk – a volatile market may make tremendous moves back and forth. This can wipe out your trade amount fast. Why take that risk? Trade lower amounts and be less exposed to risk.
- Greater return – A volatile market can also move in your direction, making you a lot of money on each winning trade. This means that you may not need to trade too much money in order to make a lot of money.
3. Use lower leverages – Using a low leverage on your trades follows the same logic as trading less. In a sense, the volatility of the market is a sort of leverage of its own. Is there really a need to add to it?
4. Don’t follow the market too closely – If you’re a careful trader who uses a Stop Loss, you don’t really need to follow any trade. In a volatile market, this is even more important as you may go crazy just by looking at what the market is doing. If you can’t stand the stress of a volatile market, either stay out of it, or invest in the Forex Mental Fitness Course to make you a more formidable and psychologically able trader.
Let’s see how long the market remains the way it is. There are opportunities in this kind of market but also a lot of risk. You need to decide whether this is for you or not.
