How to manage your trades in a Volatile market?

As you know, there is War going on between Russia and Ukraine. Every country is trying to stop Russia through economic sanctions. This has brought a lot of Volatility in the financial market. 

Many new traders who entered the market recently are facing this volatility for the first time. In this blog, I will discuss the step-by-step process of how you can manage your trades in such a market to get consistent results from Trading.

Before we dive deep into the process part, let me tell you that trading is a serious business and in this business, volatility is very important to make good money. 

There are 3 kinds of participants in the Market:

1). Intraday Traders

2). Swing / Positional traders

3). Investors

For intraday traders:

The good part is that as volatility increases, the potential to make more money quickly also increases. But the bad news is that higher volatility also means higher risk. When volatility spikes, it may be possible to generate an above-average profit, but you also run the risk of losing a larger amount of capital in a relatively shorter period of time. 

One can overcome this and convert this into a golden opportunity by following the below steps

>Don’t trade in the 1st 10 minutes of the market opening as due to sudden news flow, big players will be busy managing their positions in the opening session and we can see many violent spikes in price moment in the opening 5-10 minutes.

>Always trade in the direction of Broader market trends. In volatile conditions, chances are high that the market can give shift price moves in one direction and we don’t want to get stuck on the wrong side of the trade.

>Widen you stop-loss & decrease the quantity per trade: It is true that in volatile markets the intensity of price fluctuations increases in both directions. So to avoid getting out of winning trade just because of price fluctuations, we recommend widening your stop loss. Decrease the quantity as we have increased the stop loss. The goal with these two adjustments is to attempt to avoid getting stopped out due to wider-than-normal intraday price fluctuations while attempting to keep your overall risk exposure about the same.

For Swing traders:

As the market is volatile due to the War scenario, we have to be prepared for any sudden good or Bad news after the market hours. If there is any major news after market hours, we can expect a  big gap up or gap down opening on the next day.

Follow the below step to managing your swing trades in a volatile market:

>Don’t trade in equity and Futures: Because if you get caught on the wrong side of any trade, then the chances of making a huge loss due to gap opening are higher.  Also if you do swing trading in equity and the next day if that stock hits a lower circuit on opening, you will not even get a chance to exit and you will end up in a big loss.

>Trade in options with proper hedging: Yes, you can convert this volatility into good profits if you properly hedge your positions. There are many strategies you can build in options where you can make 10X to 20X returns on risk on that trade. >One should trade such setups only. Even if your 30% trades hit the target, you will end up in very good profits.

Many of our students who are trading Nifty and BankNifty are using this technique.

For Investor:

As an investor, our aim is to find a quality business that will grow and perform well in the future and create wealth for us. When the market is volatile and each country is implying economic sanctions, it is important we take the below pointer into consideration to save us from the negative impact on our portfolio:

>Avoid investing in a stock or a sector that is directly impacted by economic sanctions. As you are aware that due to economic sanctions on Russia, crude oil prices are rising as Russia is 2nd largest crude Exporter and now no one wants to purchase crude from Russia. This created an overnight decrease in the supply of crude and hence Crude oil prices rose continuously. All companies where crude oil plays a pivotal role will get impacted. So we should stay away from those until we get more clarity on this war.

>If you are already holding stocks that are impacted by these economic sanctions, I suggest reshuffling your portfolio and decreasing the weightage from such stocks.

>Finally, Invest in good companies when you find good opportunities. Remember company should be good and fundamental intact.

Keep Learning, Keep Growing.

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