Trading Volatile Markets
- It doesn't a lot for market prices to move quickly and unexpectedly. A major (or even minor) economic announcement, a breaking news story, natural disaster, or other event can cause markets to move. Volatility can provide trading opportunities but it can also bring significant risks.
- Volatile markets are said to be particularly beneficial to day traders which means that usually CFD activity picks up when volatility increases; if a market is moving sideways then investors don't make money.
- When trading in volatile market conditions you need to be ready to close out your trades quickly or alternatively you could widen the stop whilst reducing the position size to lower the risk of being stopped out by the daily market fluctuations.
- In any case it is not a good idea to put your stop losses too tight when trading in highly-volatile market conditions - by placing the stop further away while reducing the position size the amount at risk stays the same but there is a better chance that the CFD trade will ultimately move into profit.
- Having both short and long positions running at the same is also a prudent strategy as it reduces the risk of a market crash having a drastic effect on your portfolio.
- For situations where the markets are very volatile, you might also consider utilising guaranteed stop loss orders which remove the risks of slippage and market gaps.
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