4 Tips For Forex Market Trading During Times of Volatility

When it comes to forex market trading such as US forex trading, the first thing you should understand is that it is not the same as trading the stock market. Forex trading and stock trading are two completely different concepts.

Different types of securities are traded on stock markets and forex markets and under very different market conditions as well. The foreign exchange market faces foreign currency trading, while the stock market deals with stock and stock trading. This is probably the most important distinction between the two different types of trading.

The term currency defines currency exchange. It is understood that the forex market is a platform where forex market trading activity is carried out. The actors involved are investors who try to make a profit by speculating on the rise or fall in the value of different currencies from all parts of the world.

Higher volatility presents more opportunities to profit in forex market trading. Of course, the swing of the currency price can be in any direction resulting in gains or losses. Therefore, unless you trade cautiously the benefits can easily become losses. What precautions should be taken when trading currencies under volatile market conditions?

1. Be Choosy

Avoid the temptation to place a greater number of trades in the hope of greater profits. Don't forget that in such circumstance’s losses can also be large. Before placing your trade orders, set your acceptable level of risk. Risk here refers to both psychological risk and financial amount, which you can afford to lose in forex market trading.

2. Discipline

Stick to your default trading strategy regardless of market conditions. The Stop Loss level must be strictly adhered to. In volatile market conditions it is important that you exercise self-control and learn to make decisions without getting emotional.

3. Stricter stops

Feel free to use tighter stops in volatile market conditions. By stipulating tighter stops, you can better manage risks. For example, in a EUR-USD trade, instead of stipulating a stop of 80 pips, you can place a 50-60 pip stop. This will better protect your position. In the event that the stop loss is triggered, the probability of a higher price drop is higher in such volatile conditions. By placing a tighter stop, you would have effectively limited your loss.

4. Try to find out what is causing market volatility

Determine the reason for market volatility. Is it purely emotional because of the overreaction of traders? Or is it the fear that is causing volatility in forex market trading? Sometimes misinterpretation of economic news and currency information may also have triggered such market reactions. Depending on the reason for the market behavior, volatility may last or decrease. With this in mind, you will need to square your offers and exit the market as soon as possible.

Forex trading is no longer the domain of large institutions alone. Ordinary people like you and I can easily learn the basics of forex trading education and start trading profitably in the market.

Teacher-turned online blogger, Shirley is a full-time backyard homesteader based in Virginia. When she doesn't have her face buried in a book or striding in her garden, she's busy blogging about simple life hacks of the daily life.