7 Tips to Trade Forex During Volatile Times

How should you trade Forex during times of high volatility? Is it safe to trade FX when markets are turbulent? Which are safe-haven currencies and which are risky propositions? Find out!

Tips to Confidently Trade Forex During Market Volatility

Preamble to the state of the financial markets: The financial markets are roiling right now. The market downturn that many analysts have long been cautioning about may be unfolding before our very eyes. That it took the coronavirus a.k.a. COVID-19 to bring global markets to their knees is unexpected, but it appears to be happening. The Dow Jones Industrial Index, the NASDAQ Composite Index, the S&P 500, and a myriad of global bourses from London to Tokyo, Shanghai to Singapore are reeling right now. Consider that virtually all gains made by US markets were wiped out in the last week of February 2020.

As fears of a global pandemic take root, traders and investors are hedging their bets against equities. The rationale behind this is clear: if global productivity takes a hit because China’s insatiable appetite and production capacity is curbed, blue-chip stocks and all others will have to revise their earnings lower. On Monday, 24 February 2020, Apple led the rout on the NASDAQ. Nothing has been spared during this sellers’ frenzy in the market.

7 Forex Tips to Live by during Volatile Trading Sessions

This naturally lends credence to the possibility of alternative investments, trades, and financial activity. We have seen cryptocurrencies like Bitcoin serving as a hedge of sorts against stock-market volatility. While the correlation is not 100% ironclad, not even close, there is a degree of comfort that traders and investors find in BTC, LTC, ETH, and the like. However, the digital currency market is but a fraction of the total value of the world’s most heavily traded market – Forex.

 

Estimates suggest that between $5 trillion and $6 trillion of FX is traded daily. This is a huge figure, dwarfing the value of equities trading by a long margin. Yet, in times of increased volatility, traders invariably want to know how best to trade forex. Are there any rules that can be followed to make FX trading safer? More profitable? Indeed, there are certain techniques that can be followed, encompassing rules, strategies, and systems designed to enhance the efficacy of Forex trading activity. Let’s take a look at 7 tips to trade forex during volatility:

1. Always use charts, graphs, and technical indicators when trading forex
2. Always pick the right currency pairs to trade during volatile markets
3. Always define your appetite for risk prior to engaging in Forex trading
4. Always check your emotions – avoid panic sales or impulse buys
5. Always curb your use leverage if you are unsure what you’re doing
6. Always practice Forex trading with a reputable broker before you trade for real money
7. Always check pricing, understand market delays, and digital delays

Check for Implied Volatility in Forex Trading

It is imperative to have a thorough education in Forex trading before you dabble in this highly volatile market. There are ways to determine volatility in the forex market such as implied volatility (a measure of investor sentiment and trader sentiment), and currency options pricing. There are various other tools that you can defer to as a currency trader such as the CBOE volatility index for forex. If the equities markets are volatile, the VIX serves as a powerful indicator of current market volatility.

You can generally tell when volatility has taken root because stock selloffs run rampant. As a rule, certain currencies are regarded as better than others when markets are highly volatile. Avoid emerging market currencies – those are the first ones to get dumped en masse when the world’s biggest and most prosperous economies start tanking. Currencies like the South African Rand, the Brazilian real, and the Indian rupee may take a hit when the US and European markets are struggling. These tips can be implemented easily at reputable brokers. You can trade forex with providers like FBS where a wide range of major pairs, minor pairs, and exotic currency pairs are readily available.

Moving Averages and Technical Indicators

Source: StockCharts USDEUR

 

When you’re measuring volatility in Forex, check for basic indicators like moving averages. It is a simple, yet effective tool to use. You may wish to use Bollinger Bands (2 lines with 2 standard deviations above/below the moving average over time. When the bands move closer together, there is low volatility, indicating less variance about the mean. When the bands move further apart about the mean, there is increased volatility, with greater variance. During times of high volatility in Forex markets, you will see wide price swings, presenting traders with opportunities to profit on the up or down side. You can short forex or go long on forex depending on your forecasts.

These tips will certainly help you in pursuit of a more successful trading strategy with forex during times of high volatility. Be sure to consult Forex trading guides, use charts and graphs, and implement sound technical and fundamental analysis whenever possible.