In every market condition, volatility can work for or against you. Seeing price action rise or fall more than usual denotes volatility. A simple “rule of thumb” is that volatile markets are temporary markets. The conditions that are met as prices hit extremes are only beneficial if you can accurately time when and where they occur. Since doing so is extremely difficult, the safest way to pursue these conditions is to stay out of the market.
On the other hand, a large price stride in one day could generate more than what you’d gain in a month or two. You’ll need a game plan if this option interests you. The following are the steps to take when entering a volatile market.
Looking at Shorter Time Frames
It helps to be constantly aware of the longer-term trends in the market. Volatile price shifts will then be accurately seen in lower time frames. Don’t expect to hold your asset for more than 24 hours. Your strategy is to take advantage of superficial rallies and falls with an understanding that they won’t last. Getting in, taking your profits and then quickly getting out is your best bet. Just realize that your broker will know about the influx of orders coming in. This may increase your cost whether you’re in or out of the market.
Having an Exit Strategy
Prices that rapidly shoot up can cause most traders to act in haste. They’ll fail to complete their strategies by doing so. First, confirm where and when it’s best to exit your position. Setting this limit gives you greater trajectory once your position is activated. That trajectory acts as a measure of how strong the price move really is. If prices begin stalling before hitting your mark, then you’ll clearly see it. The momentum won’t hold for as long as it pretends to.
Entering the Patterns that You Recognize
It’s true, market participants could be making a great deal of money from the positions you see. However, if you don’t recognize the same patterns or conditions that you’ve traded before, then slow your analysis down. The last thing you want to do is to rush into a position because of the fear of missing out. Allow the market to present you with the price patterns that you know. These include higher highs for an uptrend and lower lows for a downward trend.