Volatility is traders best friend in the forex markets and it refers to the rapid and unpredictable price shifting that happens on a daily basis. So it can be measured in sudden price spikes up or down, and it is visible on all trading platforms. Volatile markets are a hint for investors towards trading opportunities and potential profits. That said, traders can make massive profits by risking 100% of their investment. Such trading practices turned to be devastating blows for the average retail traders that keep on repeating the same mistake of buying high or selling low.
Remember the golden rule in trading! Always Buy LOW and Sell HIGH and from time to time, if not always manage your risk!
Volatile markets are usually characterized by great instability of prices and heavy volume trading. The effect comes from trades placed in one direction or fundamental events. Also, the same effect can be caused by live price analysis or trade recommendations from the various well-known analyst. The blame on volatility can be pointed on institutional traders, investment banks and day traders.
Are volatile markets good or bad?
Traders depend on volatility because the price movement gives them the opportunity to profit. However, sometimes, price movement can fast-track beyond their expectations. When market volatility approaches certain levels most of the open trades against the trend are touching stop loss or wiping trading accounts. Trading on volatile events are dangerous for a beginner, and there are several ways to predict if the volatility will continue to move in the same direction.
The best news is that as volatility rises, the potential to make more money quickly also rises. The sad story is that as volatility increases so does risk. Simply put, if you are on the right side of the trend during those volatile periods can generate excellent profit within an average period. However, if it happens the other way around in the same volatile markets
conditions, you can lose all your invested capital.
How traders can be affected by volatility
in volatile markets are associated with high volumes of trading that cause delays in execution. These high volumes also cause the increase in spreads and prices that are significantly different from the market price quoted at the time of order.
Digital Mayhem where
traders may have difficulty in executing trades due to the limitations of system's capacity. Moreover, if one is trading online, one may have difficulty accessing his/her account because of high levels of internet traffic. For these reasons, many online trading companies offer alternatives like talking to a broker over the telephone to initiate an order.
where important differences between the price at which your trade is executed and the quote you receive. Bear in mind that, in a volatility market arena, even real-time quotes may be far behind than what is happening in the market. So the size of a quote may differ rapidly, affecting the likelihood of a quoted price being available to traders.
How investors can take advantage of volatile markets
Define your objectives
Increased volatility by definition shows that prices are increasing or decreasing at a higher than average rate of speed. It is quite possible that most investors and traders view volatility in markets as a good time to invest. Therefore, many investors, especially new ones, prefer to minimize their trading risk during volatile trading conditions.
It is crucial for traders to define their objectives before they start trading. By their very nature, volatility markets are high-risk, which means if investors are not careful, they can lose everything they are planning to invest. This entails higher risk and higher potential rewards. Before trading in any markets, forex traders
need to define their risk profile. If one can afford to take some losses, it simply means their risk profile will be higher.
In other words, an excellent strategy is to minimize risk when trading in volatility markets. So, if you are willing to take some risks, one can profit from the markets when trading conditions are volatile.
Also, remember the golden rule of trading: Never Invest More Than YOU can Afford to Lose!!!
Have a trading plan/method
Having a set of rules that govern when it’s time to get into a trade or exit and have a systematic, relaxed approach to the current market conditions. Planning helps when the market lacks clarity, and you are not sure on the step to take. Therefore, by planning you stick to your system, giving it time to prove itself profitable and then adjust it accordingly.
Adopt high volatile strategies
There are more chances to make money in a volatile market, as price movements are unstable. Whether you are a professional or a seasoned trader, you can profit from market volatility, but one needs the right strategies.
If the financial market is trading strongly within a defined trading range, then buying when support holds and selling short when resistance holds make sense.
The primary opportunity in volatile trading markets is the stocks that are trending might see the rate of their trend raising as overall market volatility increases.
Therefore, this implies that looking for stocks that are trending in the direction of the overall market may offer traders the chance to generate profits more quickly than they might during normal and quieter markets with a potentially higher degree of risk. However, this approach is typically used by advanced traders who look at charts to identify trends. The key to utilizing this approach is to find a stock that has been trending higher but which has not yet accelerated.
Buy and Hold
Risky traders often embrace a buy and hold strategy rather than making short-term investments. Also, traders are always looking for stable assets that can produce consistent earnings. Therefore, the approach works well in a volatility market since stable companies remain largely unaffected by short-term volatility.
Watch for breakouts from consolidations
One primary trading method used by professional traders is buying the breakout. Using this approach, traders can monitor assets that are trading within identifiable resistance and support range. So, as long as the stock remains within that range, traders may not take action. Also, if the price breaks out, traders will buy/sell the asset immediately making use o volatility.
In lower markets, a stock may breakout and lose its momentum, falling back below the breakout level. Therefore, this type of potential is the major reason to trade breakouts in a volatile market environment.
Traders need to be aware of the potential risks during times of volatility.
Investing in volatile markets can be a great option if one is confident in their strategy.
Trading volatility means that one has to know how the market conditions will affect the trade.
Volatility is the main drive for traders, and without it, no one could make profits.