Stock markets, futures markets, and economic activity, in general, have run aground since the devastating (COVID-19) outbreak. Industrial activity, from production to supply chain and sales, is suffering without people resources and resource movement. Huge corporations and companies, like Apple are forced to shut their factories based in China and supply chains are disrupted. The expectations are that most of the economies worldwide are set to suffer massive crashes.
Stock markets are seen as a reasonable proxy of economic activity. They are also similar to forex markets because global markets are interconnected and often behave in tandem. A snapshot of how the major stock markets of the world have behaved over the last couple of months presents a picture of extreme volatility and uncertainty. Cycles of rapid highs and steep falls seem to occur pretty randomly. This massive volatility in the stock markets presents a great threat to the forex market too as these markets too may experience chaos and confusion.
Of course, volatility is part and parcel of forex trade. As the volatility increases, the opportunity to generate above average-profit increases, but at the time the risk of losing capital also increases. Unusual instruments like CFDs (Contracts For Difference) are being offered at this time. Being highly leveraged, these promise massive returns but carry just as massive risks too.
Traders need to rethink their strategies in these times of the forex market volatility and uncertainty. It is true that traders can take advantage of this volatile market and capitalize on big opportunities. With a disciplined approach, traders can make the current market volatility for them.
There are some fundamental strategies that must guide how traders can take advantage of market volatility and capitalize on them for big opportunities.
Traders should select the appropriate trades or currencies depending on desired volatility toleranceTraders can invest in a fast-paced instrument that has multiple changes in direction and offers many entry and exit points. For slow-paced, trending instrument traders can invest in CFDs. Not all currencies are dynamic, so making that characteristic a part of the selection criteria will help traders build a more balanced portfolio that aligns with their tolerance for volatility.
Focus on currencies trending in the marketThe key to this approach is to find a currency that is trending higher than the others but has not yet accelerated pace to its full market potential. Due to the current volatile situation the value of such currencies might be declining but it will give a higher profit in a very short time when the market recovers. Of course, traders cannot panic in such situations but holding on will help.
Consider short-term strategies
In volatile markets when profit can vanish at any moment and turn into losses, adjustments should be made wisely to exit the trade more quickly. For example, set a specific percentage profit target, use tighter exit criteria than normal, etc.
Having a well-balanced profileHaving a well-balanced portfolio helps avoid the market volatility risk caused by various environmental and political factors. Having a strong strategic mix of currencies leads to benefits like better rewards compared to risks taken and lower risk.
As is apparent, all these strategies depend on the trader being well-informed. The speed of response and the ability to anticipate moves is also a critical component of success. And this is where technology can come to the aid of forex traders.
AI models and predictive analytics tools can be used by traders to get a sense of the future market. In this digitalized world there is a lot of data in the forex trading world, which can be leveraged to enable smart trading. Predictive analytics and big data can help traders understand the market better. Traders can use price forecast models driven by large amounts of data to make informed investment decisions. Trading platforms can incorporate such predictive models to provide recommendations to traders, trading houses, and their customers about the trades to make.
That apart, intuitive and easy-to-use trading platforms will help even new traders act on the information being made available to them in time to be able to make the most of that intelligence. They will be able to complete their trades, get more transparent visibility into the state of their trades, and get insightful reports on the outcomes of the trades they make based on the recommended strategies.
The reality for forex trading houses is that customers will still be eager to invest even in the current volatile market. What they need is the confidence that the investment decision is backed by robust predictive models and analytics tools predicting and that they can keep themselves posted on what is happening to the investment they have made. This gives them the assurance that they are in control.
So even though the forex market is volatile currently, a wise data-driven investment will help convert the investment during volatility into big opportunities. The key to a big opportunity in the forex market irrespective of market volatility is to be prepared to take risks, strategize and distribute the investment among high and low-risk options and to hold potential winners and not panic sell them. Those age-old trading strategies need to be backed with the tools and technologies that promote considered action and provide real-time visibility into outcomes.