One of the opportunities – and threats, perhaps – of trading forex is just how volatile and variable these markets and currencies can be.
Is volatility a bad thing? Well, it certainly gives you chances to make a profit from your trading when you can identify positive expectancy plays. Of course, the same variability can be devastating when previously profitable positions are eliminated.
The point is that volatility will have more of a negative impact upon your trading when you adopt a ‘one size fits all approach to the market. The best traders are those who are flexible, fluid, and adaptable to any conditions that present themselves.
In some markets, consistency of trading can be incredibly rewarding – ‘robotic’ position-taking removes the emotion out of your activity, which is often the downfall of many a trader, both new and old.
But here’s the critical point with forex trading: the market is dynamic and variable, and your trading behavior has to account for that.
Flex and change
If the market is dynamic, but your trading strategy is rigid and set in place, how can you expect to profit from any changes? And how can you protect yourself from said volatility?
It would be fair to say that 2020 has served up a number of challenges to forex traders, from coronavirus to political and economic unrest in the US, the UK, and China, to name just a few.
The situation in those three countries highlights why you need to be flexible in your approach. Simply using GBP or USD to short other currencies is a considerable risk at the moment with both the US and the UK heading for recession, so you must be fluid in your trading with such economic factors in mind.
Here’s another golden rule: no single trading strategy works 100% of the time. And it’s bull-headed to think that you might be the trader that is the exception to the rule!
However, all markets offer opportunities for profit, and so having more than one tactic up your sleeve is crucial to your long-term ROI.
While being flexible in your training is vital, so too is adopting changeable strategies that you can modify for all scenarios. And it may just be that a change in strategy brings with it a need to change the broker that you trade with, so be sure to check out the broker comparison guides to ensure you are trading in the right place at the right time.
Tools of the trade
The humble stop-loss is a trading strategy that still gets overlooked, but it is a safety net that will protect you from the worst that a volatile market can throw at you. By using it, you can manage your risk and minimize any losses experienced in a downturn.
You will receive advice that consistency in your trading is essential, and to an extent, that is true. However, consistency should not be confused with rigidity or a blinkered view of the market.
To be successful long term, you have to be prepared to change in line with the market, and you should also be happy to use standard tools like stop-loss and take profit too. That way, you can protect yourself in these most volatile times.
If it ain’t broke, don’t change – that’s the old saying. But if you don’t change it quickly enough to adapt to a changing market, you might just go broke!