Tips For Trading Volatility
Volatility is an attractive prospect for traders. It offers the opportunity for quick returns if you are willing to take additional risks.
Here are some tips for managing risk and maintaining profits when trading volatility.
#1. Trendlines
Trendlines are very valuable tool when it comes for trading volatility. They allow you to see potential trends in the market even when the market is experiencing ups and downs. However, before you jump into opening a position on a volatile market, draw some trends lines to get an idea of exactly how the market is moving overall. It is important to identify where the key support and resistance levels are forming. Keep in mind that former support often becomes resistance and vice versa.
#2. The herd mentality
A major source of market volatility is the “herd” mentality. As more traders jump on the asset, they continue to push its price higher. This encourages more traders to join the opportunity, which only adds to the trend. While riding these trends can be quite profitable, but trading on “fear of missing out on a poplar opportunity” (FOMO) is hardly a good idea. Instead, what you can do is to research properly and in advance. Make sure that before you trade against a trends that the opportunity fits your trading plan.
#3. Research in Advance
When major market events announced the best bet might to be to stay out. However, if you want to trade the fallout, you will want to ensure that you open your position before the release hits. In order to make this work you need to do a lot of research so that you can make your call on how the release will affect your chose markets.
It is worth checking also other related releases, like employments, jobless claims and more. By doing this, you will have a guess about where the release will land so you can decide how it might play out across the markets.
#4. Fill the Gaps
By now, you already know how markets can go from one price to another when trading is closed overnight or over the weekend. Often it will then fill the gap by returning to its last closing price. An easy way to trade volatility is to look for these price gaps and then trade the return to the price before the gap. But like any strategy it doesn’t work every time. So place your stops and targets at reasonable levels.
