You will learn:

How to deal with Psychological hurdles

How to manage risk in a volatile market

How to keep Support and Resistance lines in mind

Importance of Fundamental Analysis

About Market Gaps

Keeping control over emotions is critical for a trader in a volatile market. A trader’s mood should not determine his or her views of the market or his or her decisions.

  • For instance, while dealing with losses, realising one’s mistake quickly and exiting the position is important to curb a sizable loss.
  • Likewise, dealing with a win rationally and not getting overconfident is imperative—it is easy to think mistakes will not be made on a winning streak.
  • Knowing when to leave the market when it is very volatile is another important aspect. It is wiser to let the market settle, position rationally and try another day.

Proper risk management can save a trader from draining his/her entire account balance in a volatile market.

  • When fluctuations are considerable, it is wiser to trade smaller. Watching a large position size fluctuate is nerve wracking when the market is not swinging in your intended direction, and can lead to impulsive choices.
  • Another way to manage risk is to strategically place ‘stops’. Placing very tight stops do not always work; using wide stops works better.
  • Also, locking in gains as often as possible when the trade is in-the-money will ensure more gains than losses. When the market moves in a desired direction, adjust your stops and lock in your gains, do not risk too much in a volatile market that you cannot predict.

As the market value of an asset approaches the resistance line, look forward to a fall in prices; and as it approaches the support line, a rise in prices can usually be expected. Such fluctuations can easily be spotted. However, an asset may fluctuate up and down a specific line and gradually rise or fall. In such instances, predicting the next movement of an asset price requires more advanced analytical skills.

As mentioned earlier, economic events impact the predictability of an asset’s trend. In general, assets trend in a particular way before and after an important event and usually major events are accompanied by a series of other events released prior to them.

Checking on prior data releases and analysing if most of them hint towards a specific market direction or the contrary, will make it easier to decide your move.

Outcomes of economic events and data can therefore be forecasted; but, forecasts are not necessarily accurate all the time. In such cases, one should place a trade based on a particular event, before the event takes place. Whenever signs of an adverse trend grow, stops can be used.

The Online Trading market closes at 4pm EST, every Friday. Market movements are, thereafter, not depicted on charts. However, this does not mean that the market is idle. Important events keep impacting the market prices of assets even during the weekend. That is why when markets reopen at 5pm EST on Sunday, the opening price of an asset is either lower or higher than its last closing price. This difference is called a ‘market gap’. These gaps can be traded on. If an asset closed at a particular price at market close on Friday, and an important release that could potentially impact the asset’s trend is released just after, it is possible to determine the asset’s trend at open and trade on it. You need to analyse how the event impacted the asset and plan your moves accordingly.

Closing Line

Such strategies and many more exist to help limit risks and losses during periods of volatility. However, keep in mind that volatility is certain and predictions can go wrong. As a responsible trader, you should always trade only with money that you can afford to lose.