How to Trade Forex During Highly Volatile Market Conditions
Financial markets present opportunities from time to time. Essentially, these opportunities are as a result of the tendency of price to shift from one value to another. In this regard, there are two important concepts. They are liquidity and Highly Volatile. You need to understand them as they are intimately correlated with each other.
Liquidity is the ease with which a financial asset can be converted into cash without its market price being affected. When an asset is liquid, you can easily buy or sell it without exerting much influence on its price. Volatility, on the other hand, is when an asset experiences a range of price change within a particular given time.
Thus, a highly volatile asset forms new highs and lows quickly, increasing and decreasing dramatically usually within a short time. On the other hand, when the volatility is low, the price will be relatively stable. It, therefore, follows that for a market to be stable and so less volatile, its liquidity has to be high.
Highly volatile market conditions are not rare. They usually come on the heels of geopolitical crises, a pandemic, or a war. A very good and ready example is the high volatility that has recently come to characterize most markets as a result of the coronavirus pandemic.
Trading Forex During High Volatility
If you find yourself in the Forex market during a period of high volatility, you should first thank the stars. Why? Because the Forex market is the best place to be during such times. The ease with which you can go long and short in the market has not been matched by any other market.
The stock and futures markets, for example, have a limit to how much they can drop per day. In the stock market, circuit breakers can be triggered when the volatility is excessive. On the other hand, in the Forex trading signal, even at such a time, you can trade with as much leverage as you want, any time of the day.
But volatile conditions in the Forex market also come with their concerns. You will have to capitalize on the large moves, keep risk small, and overall, trade efficiently. To help you do exactly that, we have got some tips. And considering the current market meltdowns being caused by the coronavirus pandemic, now is the perfect time to actually apply those tips.
Use a higher time frame to find trading opportunities
Most likely, you already have a time frame that you diligently adhere to. It can be any. But if you really want to cash in on most of the big moves in the Forex market during high volatility, it is recommended that you rather start with any of the higher time frames.
Thus, we recommend you use either the 4-H time frame or the daily time frame. Either one is fine. Then, when you pull the chart up, you should look for a key technical level such as support, resistance, or any other similar one. And if the market is consolidating, you should be able to detect and delineate the ranging boundaries.
However, for the first scenario, you should drop to a 5-minute chart to find the consolidating bar which is closest to the technical level that you have earlier identified on the 5-H or daily chart.
At that point, unbiasedly, you should look for two possibilities. The market can break lower from the consolidation or break out from it. And the fact is: we cannot know for sure which direction it is going to go. However, what we can do is to be willing to trade in either direction depending on the opportunity that the market presents.
Via the 5-minute chart, you will be able to find an entry with small risk.
- The market is volatile. The price is dramatically rising and falling. So, the price action definitely warrants a potential high-profit trade.
- Use a higher time frame such as the 4-H or daily time frame. This will enable you to easily pick up the possible market direction.
- Then, use a lower time frame to enter the market and set your stop loss. You can, however, use the earlier higher time frame to finally take your profit.
- Eliminate biased trading. The market is not volatile very time or day. It does not always present clear trends, too. Sometimes, it is clean; other times, it is choppy. Respect that and do not impose your bias on it.
In conclusion, highly volatile conditions in the Forex market usually provide some of the best high-profit opportunities and we encourage you to take advantage of them. However, with some caution. Using the strategy here, you should always trust the signals that present. But do not be biased. So, trade only what the market provides. If you do not want to go through the hassle of analyzing the charts yourself, you can subscribe to a quality signal service instead. At 1000pip Builder, some of their best signals are found during highly volatile market conditions.