The emotions can be very powerful when the Forex market has high volatility. There are a couple of things that you must not forget, that will help to “stay in the game” when the Forex market goes “crazy”.
1. Avoid a falling knife
Trying to catch the highs and the lows is the biggest mistake that a trader can make. In extreme conditions a few failures can cost a lot on a very short time period. Stick with the trend, which is more clear, don’t try to anticipate the changes before they appear.
2. Smaller trades are better
It is very tempting to make a trade with a big volume in the hope of a considerable profit. The problem is that when the market starts going “crazy” it can jump/drop very fast and very low/high, or even go in both directions in a matter of seconds. If you make trades with smaller volume this will enable you to have a much higher risk tolerance at this spikes.
3. Set your stop loss carefully
Setting a stop loss during high volatility market can be a difficult task. You don’t want to place the order to close to the action, and to be stopped out very easily, but also not to place it to far to have a big loss. Setting a stop loss is a personal decision which depends on the trading volume, account balance and risk tolerance. Give room for the trade to have enough to move and change it when the market starts moving in your direction. Never change the stop loss order thinking that the market will have a spectacular comeback.
4. Keep the direction
When high volatility appears it might be tempting to try to trade both ways, for a double profit. This is very dangerous because you can end up trading in the wrong direction at the wrong time. Stay with the general trend and do not change the trading direction until you are sure that it has changed directions.
5. Get out at extrems
When the prices go “crazy” and reach levels that you never have thought that might be reached, it is a good moment to start thinking to close your trades and cash in the profit. Not to say that it will never reach that level again, but it gives you time to cash in the profit at a good level and also it give a time-out to stay aside and analyze the situation.
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