Managing High Volatility and Economic Data Events

The following lesson will explain how to manage your risk on high volatility markets such as economic data events and news releases.

How to Manage Market Volatility on Major Economic Data Events

Volatility010913If you plan to trade the release of important news data, then you will need a spread betting broker who can provide you with competitive spreads and rapid command activation.

This is because these occasions can generate high volatility that can often produce significant price surges. Unfortunately, most investors do not have access to quick enough price feeds that are capable of dealing with the trading conditions that are generated by key economic data postings.

The Impact of Volatility on your Trading

The spread betting market can become very volatile about the times when key economic indicators are due to be published because many investors are trying to position themselves ahead of these events. As such, your orders could be swamped and lost in this chaos especially if your internet connection is not super-fast.

As such, your spread bets may not be activated until after price has surged past your preferred opening value. There may also not be enough liquidity existing on the spread betting market at the particular time to ensure that such a massive quantity of orders can be properly executed.  Such problems often arise when vital economic indicators are posted and volatility is high.

You may also attempt to detect new spread betting opportunities by using a technical indicator as an essential component of your strategy. However, you must realize that these devices experience difficulties dealing with high volatility because they were not originally constructed to cope with such trading conditions. Again, you must not forget this vital fact when you try to trade the release of important economic indicators.

As such, you should not view technical indicators as the ultimate solution to all the difficulties generated by the publication of important news. They were specifically invented to produce their optimum performances during stable times when the price data that they rely on is far more dependable. Technical indicators do not perform accurately during times of high volatility.

Are you able to adapt these tools so that they can cope with volatility better? The simple answer is no unless you are an expert at mathematics. Instead, you should incorporate such tools into a spread betting strategy. You can then adjust the principal components of your strategy until you achieve its optimum performance.

Essentially, you must gain a sound understanding of the problems that can be produced by the publication of key economic indicators. Never forget that the spread betting market possesses the ability to create the most involved price formations that can readily stop-out your spread bets.

How to Combat Market Volatility

The speed at which price oscillates is termed volatility. The price of underlying assets supporting spread bets tend to fluctuate over an extensive range more quickly when volatility is high. Assets may not endure such conditions for the majority of the time but when they do they can produce very vicious price movements and spikes.

Market Volatility after Non-Farm Payroll Realease

Market Volatility after Non-Farm Payroll Realease

As a good practice, you should always adhere to your spread betting strategy regardless of market conditions. You should, however, enforce this concept even more during times of high volatility. You must be aware that the spread betting market can generate such extreme conditions that it can render standard trading techniques practically redundant.

As such, you must exercise increased control over your emotions during these times. The effects of volatility can also be amplified by the undisciplined use of the high leverage facilities supported by spread betting brokers. To counter all these problems, you must learn how to survive volatile conditions as a priority. Here are some guidelines to help you do just that.

1. You need a professional and well-developed trading psychology in order to keep your emotions under check. Your moods can have a serious impact on your ability to trade the spread betting market proficiently. For instance, during volatile times you will have to acknowledge your mistakes more quickly than normal otherwise any delays could generate serious financial losses.

2, In addition, you must make sure that your wins do not make you become overconfident and start over-trading. You must remain totally objective at all times. Sometimes, the market’s patterns can be so violent and random that they will keep stopping your spread bets out no matter what you try. Under these circumstances, you are well-advised to step-back from your spread betting and await calmer more predictable trading days.

3. You must employ maximum use of your money management and risk strategies during volatile trading because they may just save your account. When price fluctuates faster and over a larger range, you are also well-advised to open new spread bets by wagering smaller amounts.

4. In addition, you need to take extra care with your stop-losses orders when the spread betting market is volatile. Price fluctuation can quickly knock-out your stops so you must calculate sensible sizes. Use stop-loss orders to ensure that you always keep your risk at 2% or lower for every spread bet you enter.

5. When price does move in your preferred direction creating you a profit, then do not hesitate to move your stop-loss and lock-in some of your gains using trailing stop-loss orders. You need to deploy every little advantage that you can during volatile times. You may be able to achieve more gains than losses if you secure your profits at every opportunity that is presented to you.

Protect your account at all times during these difficult trading conditions. Your best policy is a very conservative one reducing your risk exposure to a minimum. Unwise use of leverage in a volatile market can simply demolish your account balance. This is because the financial markets possess a highly volatile nature in general. If you combine this feature with the high leverage facilities provided by spread betting brokers, then you have an environment capable of wiping out your entire account in a very short time. To overcome this massive problem, you need to base your spread betting strategy on psychology, risk management and the mistakes to be avoided.

You will also always know when to exit a spread bet should price turn against you and when to let your profits run if you always use pre-determined profit targets and stop-losses orders. If you achieve a winning streak, then you must still be careful. If you are not, then you could become over-confident and start over-trading. This mindset could then cause you to start exposing large portions of your entire account to unacceptable levels of risks.

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