Volatility is part of CFD trading and it is totally unavoidable. But volatility isn’t entirely bad because, through volatility, profits are made in the financial market. As a trader, you should learn to understand the relationship between risk and reward. If you want to get more rewards, then you should train yourself to be comfortable dealing with a certain degree of risk.
Nonetheless, if you are in the actual market, too much volatility can affect the ability of the trader to make sound decisions. During extremely volatile conditions, necessary adjustments should be made. However, there are also things that you can do amidst high volatility situations. You can take advantage of it and use certain analytical tools to pinpoint certain long-term implications of the current market volatility.
Uncertainty and Market Volatility – What’s the Difference?
Volatility and uncertainty are different due to the time frames where it is occurring. Volatility is a result of many variables and influences. During the COVID-19 crisis that we are facing right now, volatility was made as a result of some fronts like when there is a slow production of goods from China. Later, the buyers of these goods were shut down and the demands of these goods also slowed down.
Uncertainty, meanwhile, is the result of a market factor – instead of being grounded for the moment, uncertainty arises from future projections as to how long the volatility will last and the main cause of volatility to last.
Take These Steps To Adjust With the Risks
No matter how volatile the market is, this shouldn’t be the reason to stop trading. Remember that there are still a lot of opportunities even amidst the most volatile market. What you should do is focus on your behavior as you trade and adjust your trading strategy to suit the dynamics of the market.
Avoid jumping on price movements unless you have a clear direction to take. Trying to access your trading opportunities shouldn’t be the cause of aggressive trading. Hastily jumping to trade just because you are afraid to miss an opportunity to gain some profit will result in further losses.
Explore other trading instruments. It is normal for a trader to get used to one or two trading instruments especially if it’s the one you first used on your first few trades. But try to check out other trading instruments – who knows, you can get more stability from them.
Widen the stop-loss. During extreme volatility, you can wiggle a little room for your stop loss. Of course, it is understandable that you want to avoid incurring losses during these tough times. However, widening your stop loss will help account for the prices of assets that will most likely move within a straight line.
Reducing the position size. Trading too large positions during volatility will only take a single bad trade to wipe out your entire trading account. As much as possible, reduce your position size as this will also lower your potential market risk.
Moving To A Wider Time Frame. When you change your time frame in CFD trading, you are also removing the ‘noise’ brought by external influences like economic news.