Understanding a little more on market volatility
Trading is the one of the most exciting and exhilarating pastimes. The feeling of your position hitting your price target and potentially making a profit is one to savour.
However, from time to time, it can also be a precarious business. 'When do I take my profits?' 'Where do I put my stop loss?' 'The market is so oversold, surely it's hit the bottom now?' These kinds of questions have entered the minds of all traders at some point.
It is when markets become volatile, moving sharply higher or lower, that it is even more useful to understand what these fluctuations in financial markets mean and how they affect our emotions.
Volatility as an opportunity
Volatility in financial markets is sometimes seen as a bad thing. Traders get used to smooth, trending markets, or ones which are rangebound and quiet. However, the best traders are adaptable, as they have processes in place for all market conditions. Those traders have the ability to trade and reduce their losses with different strategies in place.
When volatility is elevated, you should be able to fall back on tried and trusted rules. By also using different measures of volatility, you can have a view on what the market is thinking about the current moves and how expected ranges may develop.
Navigate through turbulent markets
Traders need to able to deal with unwanted volatility. Considering the exponential growth of trading computers and algorithms, price action can be more pronounced and exaggerated.
With the right mindset and tools, you too can take on these periods and potentially profit out of them. You may be able to add to your position or initiate new positions. Whatever route you choose, it's wise to do your homework and check out our guide.
Visit us to see our steer on trading markets when volatility is high.
We explore what the definition of volatility is, how psychology impacts the cycle of markets, various measures of volatility and 5 tips to navigate your way through choppy price action.
Soon, you might even be able to follow one of the golden rules of trading and investing - "Be fearful when others are greedy and greedy when others are fearful".
Of course, that can be easier said than done. If you are finding this hard to execute, then always have a plan and be conscious of your risk.
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This article was submitted by FXTM.
