Consider Your Risk In Volatile Markets

While the volatility of the foreign exchange market provides a great number of benefits to many traders, it can also increase the risk felt by many.

For many traders, there is an inevitable trade-off between having a higher chance of making a good return yet having to be prepared to make bigger losses too.

This is not an attitude for everyone and if you like to take things in a simple fashion; it would make sense to modify your behavior during trading times that are highly volatile.

Think about making fewer trades

While there is a natural temptation to place a higher number of trades during a volatile period in the market, especially amongst high volume market traders and their  communities, you need to ask yourself is this the wisest decision. Yes, you can make a lot of money but any losses that occur in this time will be greater. The more losses you have, the harsher the impact will be on your investment decisions so think about the market and whether you are able to withstand the outcome if a number of trades go against you.

A volatile market is no place to be confident for even the best of traders at times so don’t feel as though you should be forced into placing a lot of trades.

Be more disciplined

If you are trading, you will inevitably have your own strategies in place. There will be times when some traders decide to trade slightly out with the parameters of their strategies and on the whole, this can be okay on occasions. However, this is not the case in a volatile market. You should recognise your set stops and you should adhere to the decisions you put in place for yourself. The potential losses in a volatile market can be huge and you will be even more annoyed with yourself if these losses occur due to you going against your own set of rules. Always keep abreast of new information and FX theories provided in market analysis guides.

Place tighter stops

The large swings in the market can be highly attractive and conducive to making greater returns in the Forex market. However, it is best to avoid this temptation and actually utilise tighter stops and manage your risk in a more effective and efficient manner. As an example in the EURUSD market, if you would normally have a 80 pip stop, you would be advised to considered a pip stop that was more at the to 50 to 60 level. If the pip level is reached and broken, it is likely that the trend will carry on in the same vein and the pip stop you decided upon is likely to reduce the risk of losing even more money.

Make sure that you are prepared

Investments, like gambling, should carry some rules and one of the most important rules is that you should only invest what you can afford to lose. When it comes to Forex trading, you should know how much of a loss you can afford to make and use this as the basis of your strategy. Being prepared, with respect to losses and to the behaviour of the market can help you be more informed and can help to minimise the risks you face.

It is always nice to receive a windfall but the potential losses that can occur in a volatile market means that traders must know their limits and attitudes to loss and act accordingly.

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