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About Newstrading

Trading And Surviving In Volatile Markets

Q and A

About Newstrading…

Trading And Surviving

In Volatile Markets

Trading And Surviving Volatile Markets

What is Volatility?Volatility is a statistical measure of the tendency of a market or security to rise or fall sharply within a short period of time.

Some blame volatility on day traders, short sellers and institutional investors. One explanation is that investor reactions are caused by psychological forces.

It's clear there is no consensus on what causes volatility, however, because volatility exists, investors must develop ways to deal with it.

During volatile times, many investors get spooked and begin to question their investment strategies.

The thing to realize is that market volatility is inevitable. It's the nature of the markets to move up and down over the short-term.

Traders over-reaction and emotions tend to push markets to over-extended levels.

Trading Volatile Markets

Trying to time the market over the short-term is extremely difficult. One solution is to maintain a long-term horizon and ignore the short-term fluctuations.

One way to deal with volatility is to avoid it altogether. This means staying invested and not paying attention to the short-term fluctuations. Sometimes this can be harder than it sounds - watching your portfolio take a 50% hit in a bear market is more than many can take.

One common misconception about a buy-and-hold strategy is that holding a stock for 20 years is what will make you money. Long-term investing still requires homework because markets are driven by corporate fundamentals. If you find a company with a strong balance sheet and consistent earnings, the short-term fluctuations won't affect the long-term value of the company.

Trading Volatility

Be more selective before placing trades:

Wanting to take advantage of all the trading opportunities that present themselves in volatile markets. Don’t be tempted to place an increased number of trades. The temptation should be avoided.

Losses in volatile markets are likely to be big.

Before placing a trade, assess risk tolerance levels for both psychological and financial scenarios

Use less Leverage:

Consider how leverage can affect you.

In volatile trade, trade less size to minimize exposure

Trade with more discipline:

You should ALWAYS follow your predetermined trading strategy regardless of the market condition.

During volatile markets, this is even more important to use that same level of restraint. Traders MUST adhere to stops, contingency plans or risk management without hesitation.

This will help define how much risk is taken should price action be uncontrollable.

Tighten Stop Loss Levels:

•Traders are hesitant to use tighter stops in volatile markets because they see the large swings increasing the likelihood that the position will be stopped out.

•Having tight stops makes you a GREAT risk manager!

Trading Volatility

On the contrary – Widen your Stops:

•Because of the wild volatility, sometimes providing for the volatility by having a bigger stop loss could work, depending on your strategy. So to avoid being stopped out before another aggressive move…

Be Prepared:

•Keep up to date as to why there is increased volatility in order to be prepared for the unexpected.

•By doing the above, you can accommodate the appropriate strategy at the right time.

Trading Volatility

• Always remember to adjust leverage based on volatility.

• Follow your trading plan

• Tighten or widen your stop loss levels

• Know why you are getting into a trade before you place it

• Trade ETF’s, they are less volatile.. Eg:STX40;STXFIN

• ConclusionInvestors need to be aware of the potential risks during times of volatility. Choosing to stay invested can be a great option if you're confident in your strategy. If, however, you do decide to trade during volatility, be aware of how the market conditions will affect your trade.

Trading Volatility

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