markets Volatility blog

During Lesson 10 of our most recent Foundation Trading Programme, a question was posed to all of the participating students – “Do you think that the markets are too volatile at present to actually start trading?”  This is a question which we frequently ask, as it is a great way to get a feeling for the mind-set of a potential trader.

The majority of students answered that they thought that the markets were indeed too volatile to enter at this particular point in time.  The interesting aspect to this is that it is the exact same response which we get month after month, whenever that question is posed.

The financial markets can sometimes be best described as a soap opera.  There is always some drama.  There is always some conflict.  There is always some instability.  The world is constantly in flux, constantly changing.  Greece is once again back in the news with its latest round of negotiations with Germany.   If we are not talking about Greece, then we will be talking about Ukraine, or Yemen, or the migration crises from North Africa to Europe.

Volatility is not dangerous.  Volatility is an absolute requirement if you are hoping to become a successful trader.  There is not a single person on the planet who is able to achieve a gain if the markets are not moving.  We, at the Academy of Financial Trading, like volatility.  Our proven trading strategies considers an ideal entry point in any market to be where you have low volatility, with the likelihood that volatility will increase as the trade progresses.

If this the case – if your strategy allows you to enter on low volatility, then you will be able to have a much larger trade size.  This means that, as the trade progresses, and as volatility increases, your return will be greater.  So how is this achieved?

It is achieved through Risk Management!  This is the subject which is most often overlooked.  Volatility is not dangerous – but poor risk management coupled with volatility is indeed dangerous.

Most new traders can spot potential opportunities.  Most new traders can have a reasonable grasp of technical analysis after a relatively short period of time.  This provides the new trader with a potential entry point.  What most traders fail to realise is that an entry point is actually quite easy to figure out.  It is everything which you do after that point which will determine your success.

Typically, a new trader can call a direction.  A break of overhead resistance can be seen as a signal to enter on the long side.  However, most new traders do not allow for the inherent, normal volatility… if they have been sensible enough to place a stop loss, they tend to place it directly in the “line of fire”.  What we mean here is that you can be right about the direction, but you can get wiped out prior to the market moving in that direction because of typical volatility.

Using a proven trading strategy, which has a full and complete risk management system at its core, combats this effectively.  By marrying your risk to the market volatility, it ensures that you will never suffer this fate.  This is one hugely important topic which we on focus on as part of our Ultimate Traders Programme.  This is one of the many ways where we help our students achieve their trading goals.