Trading is a risky activity and trading in volatile markets can bring more risks if you don’t understand it well. Basically, you continue to manage risk throughout the day for each position you hold or calculate the potential risk for a new position. Fortunately, you can go to http://www.volatility75.net/brokers.html if you need professionals who can help you minimize risks in volatile market trading.
Let’s examine the five principles that traders must use when volatility increases:
1. Manage risk – You must understand the risk of each trade you make. If you know the expected outcome of each trade by knowing every possible entry and exit point, you must systematically visualize and compare your trades. Traders must always prioritize certainty over risk. Increased volatility usually means you have to reduce leverage and position size.
2. Order – Always use stop loss, so you know the exact risk you can bear for a trade before you make that trade. Remember, “You are a profitable trader not because of the money you make, but the money that you can keep.” If you use moving averages to determine levels, consider using long-term averages to reduce the possibility of price spikes triggering your orders when volatility is high.
3. Stick to the plan – You need to have a clear and solid strategy, which you have tested in all market conditions. This should mean that you do not jump into volatile markets and blindly ignore the rules you have made. Wise traders must also have guidance around fundamental risk events, such as central bank meetings and earnings data releases, which have proven to be high volatility events in the past.
4. Emotional control – Volatile markets can influence traders to put aside plans and lose patience. Don’t let the delusion – also known as confirmation bias – confuse your thinking. You must be disciplined to receive evidence and not react impulsively. Traders also often see only the latest results and make decisions too quickly – known as recency bias – so that their performance is affected.
5. Improve your knowledge – even the most experienced traders always have room to be better. This means learning everything thoroughly when trading is difficult or easy. Reviewing your process is also an ongoing and non-negotiable thing.