Traders' Chowk Dr. Priyanka Sharma is the founder of Traders’ Chowk, a research blog and stock markets focused education service provider. To know more, visit her Blog at http://traderschowk.wordpress.com/ Traders' Chowk on Facebook - http://tinyurl.com/ozvz8xh

How to trade Volatile Markets

1 min read

The beauty of the stock markets lies in the fact that they are always in motion. It may move up/down faster or at a slower pace but keep fluctuating, always. However, emergence of some unprecedented events makes its more volatile which is exhibited in the form of  huge gap ups / gap downs, break outs /breakdowns and the rising VIX, the Volatility Index.

India VIX

 
‘Volatility’ has different meaning for different set of traders. Some see high volatility as ‘high risk scenario’ & prefer to stay out. However, some find it as an opportunity to harness.Trading a highly volatile market/ counter requires high risk tolerance & a tight capital to fall back on. If you are a high risk trader, who takes positions in a highly volatile market , here are few points you must follow :

1. Fewer positions & wide stops:
Highly volatile markets if witnessed on candlestick charts, have long ‘tails’ & long ‘bodies’ which makes the probability of hitting your stops more frequently. And since the intraday penetrations does not confirm change in the primary trend, chances are your stops will be hit and big money will still be left on the table which will add to your repentance after the position is closed.

To avoid this, it is advisable to be light on your positions so that  you can withstand these intraday spikes/ downsides. Also, try placing the stops wide giving room for the tails.Lesser positions and wide stops will help in limiting the losses and avoid unnecessary exits.

2. No room for hopping:
Having a sound trading plan is inevitable in trading, in all conditions and in an volatile scenario not having one is absolutely lethal. One has to be very swift & disciplined with the plan chalked out. Changing roles from Intraday to BTST to swing positions as the trade starts working in your favour may lead to a very bad surprise in next session in form of a gap up/down. In such a scenario, trailing stop losses also do not work, as the gaps can be very huge on either side, as we have witnessed  in Index in past few sessions!!

3.Taking NO position is a position, too:
Yes, having no position is a position too. Its not always necessary to be positioned in markets at all times. Good traders keep themselves away from moments of high uncertainty and stand at sidelines just to watch how the market and its participants are reacting to the event. Once the hullabaloo is over and the market is back to its primary trend, there will be more assured opportunities to harness.

Points 1 & 2 may be clubbed together when applied , however, point 3 is complete in itself.


Hope this article helped you gain a better insight to trading. If you have any query or want to learn technical analysis, just give us a buzz on (91)- 96541 79837.

Traders' Chowk Dr. Priyanka Sharma is the founder of Traders’ Chowk, a research blog and stock markets focused education service provider. To know more, visit her Blog at http://traderschowk.wordpress.com/ Traders' Chowk on Facebook - http://tinyurl.com/ozvz8xh

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2 Replies to “How to trade Volatile Markets”

  1. Trading is simply gambling. When someone loose you can win. I think we should concentrate on wealth creation by learning to invest for long term.

    1. Every business becomes a gamble if not approached in a right way with the required skills. Investing is no less risky, if one invest in a company with poor fundamentals, the losses can be manifold. Similar is with trading, since F&O are highly leveraged instruments one must have the right understanding before starting to trade them.

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