1. Use Stop Losses
Using a stop loss – a present level at which an open trade is automatically closed – is standard good practice as this can limit your downside risk and also shows trading discipline which is paramount in developing a healthy trading account. However, when markets are incredibly volatile you could experience some slippage with the position not being able to be executed at the exact level specified. In volatile markets there is often a “gap”, where a product moves substantially lower or higher than expected perhaps as much as 10-15%. With a normal stop loss you will get the first available price which could cause a large loss and result in a loss greater than your initial deposit.
2. Reduce Your Trade Size
Margin is one of the biggest advantages of CFD trading and at Pacific Union our 0.25% on FX, 0.50% on spot gold and major Indices and 3% on commodities is among the most competitive in the market place however with any margin trading you should always be aware of how much is required to keep your position in the market
A general rule of thumb is that no single trading position should amount to risk exposure of more than 5% of your available capital. However in volatile market conditions this kind of leverage is dangerous as any loses will magnified by even more than normal.
The best market practice would be to halve your normal trading size over volatile trading conditions.
3: Limit Your Trades
Volatile markets are associated with high volumes of trading, which may cause delays in execution. While online trading normally means you place a trade at a current bid and offer you see, some market maker may widen bid offer spreads or even temporarily withdraw tradable prices. This means that execution can be delayed and prices to execute at may not be available. Pacific Union provides fixed spreads no matter what market conditions but in times of increased volatility it is sometime better to limit trade execution.
4: Stick to Your Strategy
During volatile times, it easy to be shaken and diverted from your normal trading strategy but most experienced traders apply the same strategy to choosing investments as they normally do. While it’s tempting to react to the volatility, it’s incredibly difficult to predict moves in the short term, so you have to stick to your trading strategies and limit your risk exposure when times are volatile.
What are the important bits?
PLAN YOUR WORK AND WORK YOUR PLAN