Are you trading volatile markets? This article discusses 3 ways to prepare yourself for the unchartered waters of trading during this coronavirus pandemic.
6 September, 2020 | Axiory Global – The 2020 financial markets have moved in “mysterious ways”, just like that old U2 song Bono used to sing. So far, we’ve experienced some of the most volatile financial markets in decades.
For traders, it gets difficult to understand this level of volatility. Consider this:
When news of COVID-19 began hitting airwaves in 2019, the markets warbled. Encouraging news from China began emerging that it had ‘contained’ the virus.
On Feb 19th, the S&P 500 and Nasdaq all soared with the news, jumping to record highs. The Dow climbed more than 100 points. Then, a little over 3 weeks later, when it dawned on investors that the pandemic may destroy economic growth, the markets plunged by about 26 %. On March 12, the S&P 500 plunged another 9.5%, it’s steepest one-day fall since 1987. The Dow Jones and the Nasdaq took deep dives too.
That’s a lot of volatility.
Add to that the eventuality of Brexit, a possible recession in the UK, an election in the US, and the overall slowdown in the global economy, and you have yourself an amplified, almost unprecedented level of uncertainty in the financial markets.
The more risk-averse trader may choose to sit this market out and wait for more predictable times. But most traders will know that with this volatility comes opportunity. After all, the more the market prices move, the greater the opportunity to make profits on upward and downward changes.
Top 3 tips for trading in volatile markets
If you’re ready to dive, here are 3 ways to prepare yourself for the unchartered waters of trading in volatile markets during COVID 19.
1# Level up your adaptation skills
The market has become hypersensitive to new stories, so staying on top of the news cycle and adopting strategies that adapt to this level of volatility is key. There are loads of trading strategies ideas to choose to adopt at this time including, short selling, being long gamma, and balancing your portfolio.
Watching how countries adapt to the virus, currency traders could decide to buy currencies of countries they feel are addressing the crisis responsibly or to sell the currencies of countries that they feel are handling the pandemic in a way that may have negative consequences on their economies. The key is to adapt, do the research, and find your trading strategy.
2# Get set up to trade fast and safe
Market conditions can affect bid-ask spreads. Traders may not be able to quickly match buyers and sellers to execute orders. So make sure you’re trading with a broker who has fast execution and low slippage. When market volatility is high you want your trades to go through fast so you’re getting better pricing. Also, don’t forget to set up risk management tools such as negative balance protection and stop loss.
3# Consider safe-haven assets
Safe-haven assets have always been popular when there is volatility in the markets. And in a year marked by economic instability and a global pandemic, it’s no surprise that precious metals did well, with Gold rising to its all-time highs. Analysts forecast that it will continue to be good news for Gold.
A vaccine could turn things around for the financial markets, and the USD, which has been struggling since May could regain its power in the second half of the year. If it does, it will negatively affect the price of Gold, but it seems to be increasingly unlikely.
The US Dollar looks like it’s headed for a continuing decline and as it does, it will provide more fuel for Gold’s bull market. Also, Gold is currently protecting economies against inflation, which traders fear due to all the unprecedented stimulus from central banks.
This will keep upward pressure on Gold.
Provided by Axiory Global
About Axiory Global
Axiory Global Ltd. is a privately held company, established in 2012, with its head office in Belize City, and its core business is the provision of online brokerage services for private and corporate traders with Forex and CFD leveraged products via its www.axiory.com portal.
Axiory Global Ltd., IBC No 127090, is a company authorized and regulated by the International Financial Services Commission of Belize.