Not a single market in the world is immune to volatility regardless of the goods which are traded in it, and the foreign exchange market is clearly no exception. It takes a lot of efficiency and expertise to survive during the times when the prices are constantly going up and down and experienced traders usually go for a more watchful and shielding trading strategy in order to stay afloat. Of course, there are some traders who tend to give up easily as soon as the market starts moving against them and they abandon their previously assembled tactic. Novice traders tend to get intimidated as well, abandoning their plans and staying away from the foreign exchange market until they are sure that the market is not fluctuating anymore, or perhaps in more extreme cases – give up on trading altogether.
Volatility is simply a part of the market and it is impossible to avoid it forever. A trader should learn how to deal with it in the best way he or she can. The very essence of the foreign exchange market is the movement of the prices over the short period of time and surely, those shifts can be significant or insignificant. Some foreign exchange market traders simply ignore the short term fluctuations of the prices and they keep their gaze fixed on a bigger picture, choosing to go for the medium or long term trading. Nevertheless, even if you are using this strategy while trading and it has been working for you just fine, you should learn how to deal with trading in not so perfect conditions because it will help you understand the market better and you never know when it will come in handy. The volatility of the market creates a whole new set of potential ways to increase your financial assets and it can benefit the traders who are not afraid to take on a new challenge in order to make a profit.
What is volatility of the market?
Volatility in the forex market is the number of recorded changes in a price of a certain currency during a specific time period. There are many factors which influence the appearance of volatility in a single part of the market. Some experts claim that the volatility occurs whenever there is an official data release made by either an official bank or a specific government, or when there is turmoil in the geopolitical sphere which can change a direction of the market. Others think that it can happen when there is an imbalance in the trade, meaning that there are sales and no buyers, or the other way around, citing the disproportion of the supply and demand as the origin of the volatility. There might even be a third influencing factor – the psychological one. There are analysts who claim that a shift in collective thinking of the traders can sometimes lead to volatility. One thing is certain – the market is volatile and traders should simply learn to deal with the situation no matter how hard it might be. It is the only way to avoid the possibility of failure in the future.
The foreign exchange market shifts and changes during the times of volatility and there are several characteristics which occur when the market is unpredictable. The websites of the brokerage houses experience high traffic and therefore they might become slow. Traders have reported the difficulties with logging in or gaining access to their accounts, as well as problems with loading the page altogether. Surely, the brokerage houses are aware of this problem and most of them offer the alternative trading options in the form of trading by using your telephone or even by the fax machines. Therefore, it is not only obligatory to have access to the internet, but also to be prepared in case you are not able to conduct your trades online.
Since we live in an age when the technology runs everything, we are used to fast completion of every task. A trader should be aware that volatility of the market might cause delays in order placement as well. Another interesting occurrence that might happen due to the delays is the difference in the price. Some trades might be completed with an entirely different price than the one which was offered when the trade was initially ordered.
It is also good to be aware of the fact that sometimes the quotes are not updated instantly when the market is volatile and the numbers might be late a couple of seconds or minutes. Having in mind that the short time trading relies on these movements in the limited time frame, this might be a problem for many traders. It will most certainly cause some difficulties and obstacles along the way and it is smart to know that this issue might occur every once and a while.
Ways to trade in the volatile market
Being disciplined can be of great help when trading in the volatile market. Hopefully by now you have learned that you need to keep your emotions away from the trading business and rely solely on the technical and fundamental analysis. Once the foreign exchange market starts to shift and fluctuate, it is important to stay calm and focus on the hard facts only. Once you have identified what caused the prices to move so quickly, set your trading goal and do your best to reach it. Of course, be realistic and do not aim too high if you are unsure of your own performance. Clearly, volatility opens up new possibilities for successful trading and there is a hope you will make a large profit this time around. But whether you are overly optimistic or not, do not jeopardize your entire account just because you had a feeling.
Also, there is absolutely no need to trade all the money you have on your personal trading account. As a matter of fact, that would be foolish. Know your limits and never trade the money you can’t afford to lose, especially when the market becomes unpredictable. Surely, the more money you invest, the profit will be greater. But be aware of the possible risk which comes with every trade and think clearly about the outcome.
Sometimes going with the flow and following the trend might be the best solution in this situation. It means that you should do what the other traders are already doing and be sure not to trade against the trend. Learning how to spot a trend is a part of the technical analysis and it is done by looking at the charts and identifying the patterns. The number of the reoccurring patterns a trend should have depends on the position you wish to take, either it is the short term, medium term, or long term position.
If you are still uncertain about your trading skills or you are simply not experienced enough to trade in a volatile market, take a step back and wait until the market returns to a more normal state. It simply cannot fluctuate forever and the period of volatility will eventually go away. But keep in mind the important data release schedule and follow the current events in order to accurately predict the next period of volatility of the foreign exchange market. Perhaps you will be more confident the next time around and decide to continue trading regardless of the uncertainty you might face if you choose to stay.
Trading during the market volatility can most certainly create more potential for some traders. Always be honest with yourself and determine whether you are capable of short term trading or not, especially in these conditions. If you are unsure of your success when the market is unstable, stick to what you already know, continue trading as before, and avoid making important decisions during the volatile period. Many traders get discouraged and lose their trading confidence when they have high expectation but they end up failing instead, so keep in mind that trading in the volatile market is tough even for the experienced traders. If you think that you might be victorious, try it out and see how it goes. Perhaps you did your research thoroughly and you came up with a strategy that might work in your favor. Keep your emotions at bay, stick to your plan of action, and see it through until the very end. Your strategy for trading during the volatile period might be different than the one you would normally use and that is completely fine. It is important to adapt to the new conditions and stay collected even when you are aware of the possible risks involved in short term trading in the volatile market.
If you are capable of adapting to trading in the volatile market, you will most certainly increase your potential for overall success. Never forget that you have the ability to choose when and where to trade and that you are responsible for your own accomplishments.