Trading Forex In Volatile Conditions: What Traders Should Know – ValueWalk

Trading Forex In Volatile Conditions: What Traders Should Know
PIX1861 / Pixabay

There has been enormous growth in the number of forex traders coming onto the market recently, as more people now have access to the tools and technologies that enable them to buy, sell and trade foreign exchange.

Traditionally, it seemed almost impossible for the average person to have access to forex trading, having to rely on the abilities and knowledge of seasoned forex brokers.

Automated technology, mobile applications, and innovative prediction software can now allow average traders to be more exposed to the forex trading market. The innovations and increased interest have led to an acceleration in market growth, with current estimates indicating the market to grow by $1.94 trillion between 2021 and 2026.

Olesen Value Fund Outperforms With Focus On Illiquid Micro Caps [Exclusive]

Christian Olesen’s Olesen Value Fund declined by 5.6% in June, according to a copy of the firm’s monthly report ValueWalk has been able to review. Following this performance, the value-focused fund has lost 12.2% year-to-date net of fees compared to a return of -17.9% for its benchmark, the MSCI All-Country World Index. The fund has Read More

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q2 2022 hedge fund letters, conferences and more

Forex is perhaps the most heavily traded market globally, as individuals, businesses, government institutions, and countries can participate in it.

While various technologies have made it more effortless to access forex trading, seeing approximately 10 million active forex traders in the world, surprisingly enough, 72% of traders have no prior experience of trading in other markets.

In the United States, around 60% of forex traders are currently aged 40 years and older. Younger generations, those aged 20 to 30 years make up 13% of the market, with 30 to 40 year-olds having the second largest majority of 27%.

Market interest is steadily growing, and for good reason, as forex trading looks to become a haven for many looking to offset rising costs and economic uncertainty driven by the pandemic and political unrest.

Like other markets, forex can be a tumultuous place to navigate, especially for someone completely new to the market. There’s a lot of talk coming from experts who are suggesting that novice traders can lose out big if they don’t have the necessary skills and knowledge to trade on the market.

In highly volatile market conditions, and with an uptick in forex and trading scams sweeping across the market. It’s becoming more and more crucial for traders to become equipped with the right tactics before making any major trades – especially with the rise of forex trading scams now taking hold of the market.

Here’s a look at some of the basics novice traders should keep in mind when trading in volatile market conditions.

Table of Contents

Commit Yourself

With anything in the market, whether trading stocks, commodities, cryptocurrencies, or forex, commitment is one of the biggest requirements any trader has to have.

Committing yourself to the forex market means taking the time, and having the patience to grow your skill and learn new tactics that can help you become more intuitive. It’s nearly impossible for any person to have a hand over the market within a few weeks, or months of trading, perhaps even after a couple of years as well.

Right from the start, traders should know that forex is not a “get rich quick scheme,” nor is it a market that can be very rewarding if you’re not paying attention to what’s happening in the broader macroeconomy.

Being an active participant requires one to research what’s happening in the market, and what are the potential downturns that one may experience in the near future.

Know The Currency Pairs

There are dozens of different currency pairs, with a majority of the most common pairs set against the US dollar or USD.

For example, the most common pairs, and perhaps the most traded are USD/GBP, EUR/GBP, USD/JPY, AUD/USD, and NZD/USD, among others.

Knowing which currency pairs allow you to follow the trends and developments of the countries that carry those pairs.

Developments such as political instability, inflation, rising interest and mortgage rates, and slowing economic recovery can all be contributing factors that can influence the value and trading power of the currency.

Perhaps a good example of this is the recent parity of the euro to the dollar, which is the first of such events in more than two decades.

Tension on the European continent and a slow down in the economic recovery from the pandemic has put the euro under immense strain in recent months.

Follow trends

Macroeconomic trends change without notice, and it happens in real-time, day in and day out. For new traders, and those seasoned professionals, economic trends are key indicators of the development of certain forex pairs, or a specific foreign currency.

Following trends could give traders better insight into how they can plan and trade in the near future. While most of these insights are solely based on predictions and estimates, at the time, of course, it helps traders better understand in which direction their forex pairs might move.

It’s important to follow trends in local economic conditions, and the development of a country’s foreign currency to create a plan that can help you navigate the road forward.

Choose a Forex Trading Strategy

There are various forex trading strategies, from scalping to swing trading to day trading, each of these can mean something different to every trader. Additionally, experience and knowledge can also impact the type of strategy you pick.

For many traders, it’s important to choose a strategy they are comfortable with, and that works with their level of experience.

Depending on the short or long-term goal, traders should choose a strategy that helps them better understand their stance in the market, and how they are looking to increase their trading skills and knowledge over time.

Additionally, it’s good to consider a strategy that fits with the amount of time and effort you’re looking to put into forex trading. Remember that the longer your commitment the greater chances of increased returns over time.

Execute a Game Plan

Before diving head first into the market, it’s considered to have a plan or strategy that you’ve curated to your needs. From there on out, some suggest that you should execute your plan on a small scale at first, to test whether it’s plausible in more practical and larger trades.

Having a game plan means you can change it whenever you want, and also how it suits you. If market conditions suddenly shift, your game plan can be adjusted accordingly. It’s good to have a plan that can adapt to a fast-paced market environment.

Disregard Emotional Biases

Many times, traders tend to let emotions and biases get in the way of their trading sessions, which in time can lead to increased risk and longer exposure to volatile market conditions.

In the fast-moving forex market, emotions and biases should be disregarded, and should not have an impact on the trades you make throughout a session.

Many new traders tend to get overwhelmed during the first few trading sessions, and it’s understandable, especially if they are completely new to the market. While these conditions fade over time, right from the start new traders should ensure they are focused and determined by not letting their emotions impact their trading decisions.

It’s not easy at first, as emotional bias is a human and biological condition we can’t simply turn on or off, but it’s important to have balance and know when a trade is being influenced by certain emotional decisions.

Understand Bid/Ask Spread

Bid/Ask or bid-ask spread plays a significant role in the foreign exchange market. The bid-ask spread is the highest amount an asset can exceed its selling price.

The bid-ask spread also looks at the highest price someone is willing to pay for a forex pair, against the lowest price seller is willing to accept an offer. In the foreign exchange market where buyers and sellers of different pairs can vary, it’s important that traders research rates and market trends throughout the day.

While the equation may remain the same, it becomes relatively confusing over time and in practice where market conditions tend to fluctuate and change rapidly.

Traders will need to stay on top of their game throughout each trading session and equate the bid-ask spread within their trading strategy to ensure they make the right trading moves throughout each session to help lower their risk of volatile exposure.

Final Thoughts

Forex trading is perhaps not as welcoming as stocks or commodities, but it’s nonetheless a market that offers potential.

While it’s not possible to become an expert within the first few trading sessions, traders should follow a strict gameplay and trading strategy that will help them navigate the market easier, and more seamlessly.

The foreign exchange market is highly volatile – and traders are encouraged to educate and improve their skills, before, during, and after each trading session. This way they will improve their understanding and knowledge that can help develop a long-term strategy.

Updated on Jul 21, 2022, 5:10 pm

Leave a Reply

Your email address will not be published. Required fields are marked *