7 Tips on How to Trade Volatile Markets

7 Tips on How to Trade Volatile Markets

7 Tips on How to Trade Volatile Markets

The see-saw markets we’re seeing lately come with their own set of challenges

Yesterday saw one of the sharpest declines for US indices in over three years, even before the middle of the trading session. News outlets were changing their headlines almost every hour with doom and gloom headlines. But before the day ended many buyers came into the markets and returned the overall loss for the day to a level comparable to many other losing ones.

It was an excellent example of volatile markets that have a lot of volume and a lot of buyers and sellers. It makes for a different game when it happens and these are our tips on how to adapt to it:

  1. Allow yourself time to adjust. Just like the mind immediately registers when it’s dark, but the eyes still need some time to start seeing better. When larger moves start happening they can be clearly seen, but changing the way you trade doesn’t always happen immediately.

  2. Keep a cool head – frequent traders have some preset expectations about trading sessions and they can get confused, distracted or surprised when large movements start happening thick and fast. Actionable moves in both directions within short amounts of time can throw off someone who isn’t on cue with what’s going on. Don’t let it affect your decision making process, take as much time as necessary to prepare.

  3. Trade smaller amounts (at least initially) – part of adjusting is to dip your toes in such a market and see how it feels. If its too hot it may be best to pull out quickly with little harm done and wait for better conditions.

  4. Lower take profit and stop loss levels – this might seem counterintuitive but it’s actually the best risk management approach to volatile markets. With sharper moves based on a trend and its corrections, the trick is not to predict the blurry and changing support and resistance levels. It’s rather to make many short-term trades on a certain direction, keeping in mind that it can reverse abruptly.

  5. Be more selective of what you trade – with a lot going on on multiple fields, charts and timeframes, it’s better to focus on less variables than you can usually handle. Stick to the instruments you know best.

  6. Have in mind the emotions in the market – this is the time where fear and elation are at their peak on a large scale. They are the things that bring out the largest amount of individual and institutional investors. Similar to a tense or aggressive conversation, it can be irrational and confusing, so you have to read the signs well to be able to walk away with something from it.

  7. Sit it out if you feel uncertain – this could actually be the best way to act during heightened volatility. Although you might get the feeling you’re stuck at the station after the train has left, it lets you observe from a safe distance if there are some patterns in all the commotion.

All major European, US and Japanese indices are available for trading in the Trading 212 PRO platform.

One thought on “7 Tips on How to Trade Volatile Markets

Leave a Reply

Your email address will not be published.