How to Manage Risk and Make Money in This Volatile Market Risk and factors to keep in mind while the market is highly volatile.
By Tanveer Zafar Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
Trading is a profitable business when carried out strategically. However, it can be especially risky with the ever-changing up and down nature of the financial market. While volatility can make trading difficult, it could also be the perfect gateway for many new revenue opportunities.
But why does the market frequently notice this recurrent change? The simple answer is market volatility is inevitable because its nature allows for a constant up and down fluctuation in market prices over a short time. It is most evident in the financial sector.
The current volatile market trend today has spooked many investors to question the potential of generating revenue even with top-notch investment strategies. How?
Volatile markets relate significantly with high volume trading, which may lead to delay in transaction and execution of trading requests at market prices different from that quoted at the time of order. Likewise, trading platforms may experience significant mayhem as there might be noticeable difficulty to execute trading and even access accounts.
For beginners and novice traders, this sharp rise and fall nature of the financial market over the short term can cause them to pull out from investments while waiting at the sidelines until the market is safe again. On the other hand, some brokers simply want to make more money and overlook the signs of an incoming change and end up losing more than necessary.
Related: Starting Your Trading Career? Three Important Requirements For Your Success.
Most times, traders do not know how to check and balance their emotions like fear and greed, which may cause major loss. Equally, they may lose the ability to seize the opportunity to capitalize from the terrific price action in the market. Experienced traders, on the other hand, know that volatility can surface at any time, interrupting smooth trades.
While it is important to know when to know your marketing strategies to preserve capital and profit, maintaining a long-term horizon and overlooking short-term fluctuations is also necessary. One way to achieve this is to strategize day-to-day steps to keep afloat in the current volatile market. Here's how you can profit more even with high market volatility.
Understand that trading is risky
Trading is a business filled with uncertainties and risks, Either it is stocks, crypto or market. Where you may make more money from trading stock at a profitable market price today, there may discrepancies in the same market value another day and this may affect the quotes you receive during transactions. Essentially, to stay afloat even in a volatile market requires that stockbrokers stay at the hem of their game, taking care of their mental health and understanding how the stock market works are the first step to remain buoyant in the trading business. Unlike stocks, crypto trading has much volatility. Either it is a stable coin i.e USDT or a hybrid coin (i.e IMCoin), the whole market is highly volatile.
Manage trading risk
When volatility increases, taking decisive steps to manage risk is of utmost importance. Every trade has its own risk, and knowing the probable risks will help you visualize, compare and analyze trades at their possible entries and exits, which will also help you estimate your returns.
Know your order types
When trading, it is best to know the amount of risk you are willing to take. This is because trading does not just amount to winning a trade you may have made. Rather, it is the amount of risk you take without incurring losses. While there are various ways to know your order type and set moving levels, you would want to know your risk-taking capacity before trading.
Related: Can You Handle the Investment Risk?
If you prefer trading using moving percentages to calculate your risk and set your levels, consider employing the long-term averages. It will reduce the chances of losses when market price spikes, especially when volatility is high. On the other hand, the limit order is one strategic tool that will keep you afloat in the volatile market as you reduce losses by buying the stock at a price slightly above market price. In essence, you are increasing the value of the market, which will boost your revenue.
Similarly, it is important to take profit limit orders. Experienced and successful traders know the risk in investing and if done strategically, may exit with outstanding prices when the market is in the trend.
Use tested strategies to trade
Having a robust, well-defined, and working strategy proven to work successfully in all market conditions is necessary. With this working strategy, you do not erratically jump into the volatile market without observing the market trend. Added to this, traders should have a set of rules that guides vital risk events earning releases, which are high in volatility.
Get control of your emotions
Evidently, the volatile market is one that demands patience, knowledge, and control. This is because it can easily sway investors without the know-how of trading to abandon their investments. For a successful day-to-day transaction, never let confirmation bias sway your thinking. Gaining control of your emotions will provide you with the discipline you need to act decisively rather than on impulse or chase performance due to recent winning trades.
Review your process and stay educated
No matter the level of expertise traders may attain, an ever-changing factor should be education. The financial market leaving continues to evolve due to global advancements, and it has left room for improvement. But, to improve, you should learn to invest your time in learning about new market reforms for an easy day-to-day trade. Reviewing past strategies and processes is also vital.
While many factors, such as unexpected earnings and downsizing within the central bank can cause fluctuations in market prices leading to a volatile market, staying afloat in the volatile market will only depend on a trader's psychological ability.
Every trader reacts differently to fluctuations in prices in the course of trading. But to turn a volatile market into a profitable one requires not only knowing and managing risk but also entails having your defined trading strategies, controlling your emotions during a trade by being patient and disciplined, reviewing working processes, and investing time in learning about new market reforms.
