Tuesday, October 13, 2009

5 TIPS FOR TRADING DURING VOLATILE MARKET

Volatility is a measurement of the speed of change of the value of a forex pair. A highly volatile time means that the price shifts up and down more rapidly and by larger amounts than during times of low volatility.Volatility occurs in the forex market especially when a very important news is released, like non-farm payroll, interest rate and so on. These periods of volatility provides traders the best opportunities to make real money from the market and at the same time it is the most risky time to trade forex. Especially to the newbies in forex, making money during news releases is more like a game of chance, because everything happens in a twinkle of an eye. This post is designed to help traders by giving them the necessary tips to maximize their positions during market volatile periods.

The key thing here is that one need to plan his/her trade before time, but how do you make those plans?

  • Select your trades before the news releases. Forex market presents plenty of opportunities during these periods, so you need to be selective of the currency pairs you will be trading. Don't try to over trade i.e. placing so many trades across different currencies but select one or two currency pairs you will be trading. This will help you to be more focused in your trade. Personally, during important news releases on the US currency, i prefer trading only one currency pair; EUR/USD or GBP/USD depending on the economic state of the pairing country.

  • Reduce your leverage. Volatility period is most the risky period to trade because your stoploss can be reached in a twinkle of an eye without giving you time to make changes. You have to reduce your leverage in trading in such times.

  • Be more disciplined in placing your trades. I will say this over and over out of an experience. The trade you placed may be going your direction but don't be beclouded by the emotions of greed. Don't place more excessive trades without checking properly the technicalities involved. Follow the rules of your trade and trade more cautiously.

  • Make use of tight stops. In a volatile period, it is possible for a trade to move 70 pips against you and still reverse to 100 pips in your direction. It is better to use tighter stops to cut out trades that are not in your favour and look out for another opportunity to enter your trade.

  • Always be prepared to take the bull by the horn. How much is your target? How much can you afford to loose in that trade? You need to get organise and put thesefigures in paper and pen before entering a trade. Be prepared physically, mentally and psychologically.

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