Volatile Markets are those markets where the price rises and falls rapidly and sharply. That means there are very fast and wide price fluctuations in the markets.
Did you know that volatile markets present the most trading opportunities?
Well besides that, they also present the most losing opportunities. Come to think of it, situations created by volatile markets are somewhat two faceted.
As much as you will win, you can also lose everything in such aggressive markets.
To survive and still profit in volatile markets, you must use well-drafted, tested, and proven strategies to trade.
But which are these strategies that best fit volatile markets?
In this post, I will show you 7 best trading strategies for volatile markets.
You don’t have to go off the markets when volatility sets in, instead, consider volatility as an opportunity to make money trading.
Ready for my list? Here we go:
Scalping is a trading strategy that aims at catching small price moves on the market.
Naturally, scalpers analyze the market in a matter of seconds, enter trades, and exit them in a matter of minutes.
What that means is that it is the small price swings that occur in a matter of seconds and minutes which matter in scalping.
Experienced scalpers will enter and exit so many trades in a single day and still end up being profitable.
Do you know how they do it?
They try to ensure that much as some positions are loosing in their portfolio, the majority win.
Why is scalping suitable in volatile markets?
Because in a volatile market, prices change so fast, and sometimes it may be difficult to count on them for big moves in a particular direction.
With good timing and reasonable stakes, you can make money as a scalper trading volatile assets.
Did we already mention that volatile markets are not easy to predict?
Well, price fluctuations happen so fast but.
To save you the headache of following price action in zigzag pitfalls, make the trend your friend. Even volatile markets move in trends.
How to go about it.
Identify what trend the market is on, whether uptrend or downtrend.
Sometimes you may also have sideways trends.
What next after you identify a trend?
Trade in the direction of the trend – uptrend or downtrend, or sideways (use trading strategies for ranging markets).
Don’t trade against the trend in volatile markets.
Here’s how to identify trending markets.
Markets that post progressively higher highs and low are up-trends while those posting lower lows and highs are downtrends.
Sideways trends post highs and lows at almost the same level and resemble a price range.
Scaling in and out.
What is scaling in?
It is that art of entering a trade with only a fraction of the usual trade size and then adding units as the position grows.
On the flip side, scaling out means exiting the grown position in bits, as you lock in profits accumulated in the course of the position.
You close some positions and leave others to continue gathering more profits.
This strategy is suitable in volatile markets because it allows you to lock profits while you continue to trade.
You cannot afford to risk the whole trade amount in an unpredictable situation such as those presented by volatile markets.
Rather, scale in and scale out of positions like a pro to emerge profitable.
Higher Time Frame Trading.
The major reason to trade higher time frames in volatile markets is to remove most market noise.
Lower chart time frames, especially on volatile markets, are a nightmare because prices spike and fall in a very difficult manner to predict.
The higher the chart time frame you use to analyze the markets, the less market noise you experience, and the more accurate your analysis is likely to be.
So what then?
Adjust your chart time frame into higher time frames such as 1 hour, 4 hours, 1 day, and so on and analyze them on that basis.
Besides removing the market noise, you will also have more data to act on and make conclusive trading decisions.
Wider Stop Losses and Narrower Take Profits.
You read that right and it means exactly as it appears.
Let me explain.
You may enter a trade at one point, setting a very tight Stop Loss.
The price then moves towards your Stop Loss and you are shortly removed out of the trade.
To your disappointment, the price very fast again, moves in the direction you had initially traded, rallying even past where your Take Profit had been.
What if you had just made that Stop Loss wider, maybe the price would not hit it and would reverse towards your Take Profit instead.
Ideally, volatile markets move only up to half the distance from your entry to Take Profit and then reverse all the way to hit your Stop Loss, removing you from the trade.
What if you just made that Take Profit a bit narrower? Would you still lose because prices reacted too fast?
Support and Resistance Trading.
Support and Resistance levels are also respected by volatile markets. You only need to identify them and know how to use them.
Identify a level where the price always seems to reverse downwards and that is your resistance level.
For your Support level, spot a level where the price has severally seemed to reverse upwards.
No matter how volatile the market is, as long as it doesn’t break support and resistance, buy at support and sell at resistance.
You stand a chance to profit regardless of retracements here and there.
Risk Management Strategies for Volatile Markets.
Even if I give you a thousand trading strategies, they would be worthless without money management.
This is just a reminder that all trading strategies must be used alongside strict money management.
Long or short position traders can opt for martingale money management or even go for proper risk to reward ratios. Whatever works, go for it.