Finance Exchanges Strategies: How to Navigate Volatile Markets While Trading?

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The greater financial market, of which the Forex and other trading niches are a part, is renowned for being incredibly volatile, and that may seem pretty scary for the uninitiated. Therefore, let’s see the potential benefits of volatility and also check the issues that could come about, and how they’re dealt with. With this knowledge, nothing should surprise you when you get into the field.

By the way, if you want to know more about managing your finances, go to Rates.fm — finance exchange.

Defining the chaos

Volatility simply refers to the fluctuations of prices over time, and in the realm of Forex, the currency pairs are at the center of things. Highly volatile Forex pairs (quoted in pips) are those with the largest difference between the highest and lowest prices. The changes in value are caused by a myriad of factors which include the following:

  • Economic factors such as a country’s GDP (the USA, Canada, or any other), inflation levels, central Bank policies and interest rates
  • Political factors such as elections, tensions regarding trade, general stability and so on
  • The sense among those looking to make a profit can cause positive sentiment if enough traders view the market as likely to be favorable
  • Liquidity, which can create a lot of turmoil if it’s too low

The economic and political events are particularly noteworthy as they influence the last two factors. An economic factor like inflation can negatively impact currency (dollars, euros, etc) when it’s too high and central banks will have to make policies in response, often resulting in them raising interest rates. Geopolitical events can also cause potential volatility which you can analyze and follow at such services as Rates.fm — finance exchange.

What do chaotic markets bring?

Volatility, irrespective of intensity, always has an impact on those looking to be profitable and thus, on the overall space itself. In the finance exchange world, highly volatile times typically signify a high-risk/high-reward situation, which is both enticing and frightening. Some will look at volatile currency pairs such as USD/JPY as a great opportunity and can make some serious profits if their timing is right.

However poor timing and the doubled-edged nature of this pair could lead to terrible losses. Knowing this can be quite stressful for those in the finance exchange space according to Rates.fm, and it’s only heightened when high volatility causes low liquidity, which makes any activity more difficult. It is for the above reasons that interested parties will always try to find ways to mitigate risk, which we’re about to get into.

Dealing with it

When it comes to dealing with potential risks that could be brought about by volatility, several mitigating strategies can be employed. The first thing that would be advisable is for you to know as much about this space in the financial market as possible. This includes understanding how the market works, its terminologies and useful strategies, all while also keeping a keen eye on events that could cause volatility such as those above.

From this knowledge, all will be revealed to you, including some technical indicators you may want to look out for. Key among these are the following:

  • Bollinger bands, which show the relative basis at which prices are high or low, and have widening bands showing high volatility while narrowing ones show the opposite
  • The Average True Range (ATR), which was developed specifically to calculate volatility, has higher ATRs showing an increased volatile nature

Using indicators such as these gives you a lot of insight as to what steps you can take next and from them, key strategies can be developed and used. Among the most prominent are the following:

Locking in

There are two strategies in particular that one could describe as preventative and they are the take-profit and stop-loss orders. Both measures are automatic locks, and with the former, a preset profit point is set that abraded deems as enough, thus locking it in. The latter works in the same way, only that the predetermined price is set on the loss side.

Broadening your horizons

In the financial market as a whole, a lot has often been said about diversifying your portfolio and it’s honestly a great piece of advice, as you don’t want to put all your eggs in one basket. The Forex market is the same and many would encourage you to spread risk by going away from one currency pair and embracing multiple. This reduces your vulnerability to one pair’s volatility, thus improving your protection against drastic losses, should the chaotic nature become unfavorable.

Seeking other alternatives

Any experienced trader will tell you that holding your position in high-volatility situations is not easy, especially if the movements are big. If you use a short-term strategy like day trading, or scalping in truly turbulent moments, for example, you could wind up harnessing the volatility to your advantage. This should, however, come with size adjustments made on positions concerning volatility, which further mitigates risk.

Final thoughts

If turbulence is something you avoid and risk-taking isn’t something you’re into, then you’ll find that Forex trading, as well as any part of the financial market, would not fit you. However, the risk volatility brings is almost balanced by the possible rewards as Rates.fm finance exchange experts would tell you, and the only thing it boils down to is how you handle things. Basic knowledge is a good place to start, but if you’re going to try being profitable, key information, and strategies will need to be understood, as well as practiced.

The above volatility-creating factors in conjunction with the technical indicators, the strategies and the practices, won’t remove volatility. They really shouldn’t as it can be taken advantage of and keeps the market moving. That said, it’s always good to be wise and the above certainly helps with that.

Claire S. Allen
Claire S. Allen
Hi there! I'm Claire S. Allen, a vibrant Gemini who's as bold as my favorite color, red. I'm a fan of two cool things: strolling the streets in a red jacket and crafting articles that connect with readers. With my warm and friendly personality, Claire is sure to brighten up your day!
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