Sometimes the market can be observed to be calm for several sessions. The forex market suddenly became volatile after a few hours. This is known as volatility. Two types of volatility in trading are to be observed: historical and insertion. Historical Volatility refers to normal Price Actions during a trading period. Injection volatility, on the other hand, is a condition that causes abnormal price actions or future price movements. The volatility of inserts is often higher than the historical range.
Forex trading with high volatility is safe if you use risk management techniques. Once you are proficient in the technique, volatility can be used to make large profits.
Increase the Target: When the market begins to ‘fidget, it is logical to increase our Take Profit and Stop Loss targets. When volatility rises, Price Action will show you three behaviors:
- Volatility in a market can cause it to move hundreds of pips in one direction and not look back.
- It is possible for hundreds of pip to move in a choppy Price Action, causing a deep reversal in each limb.
- It is possible that up and down movements can be very rapid within a given range. To avoid this, increase your Stop Loss target or Take Profit target. This can help us to avoid price swings and reduce losses while increasing our profit potential.
Shrink Loss This is the reverse of the first. When there is high volatility and price action, it may be necessary to set a target with a low Stop Loss in order to achieve a high Take Profit target. This technique is most effective when used in volatile markets. Although it is quite dangerous, this technique can be used to predict the possibility of breakout.
Low leverage: For traders who are looking to make large profits from a small amount of capital, leverage is very beneficial. Leverage can be used as a weapon against our account. If we increase the Stop Loss target by trading with high volatility, we need to reduce leverage. Trading must be safe. Our account must have a margin ratio comparable to normal volatility trading.
Forex brokers are not always able to grant requests for changes in leverage. Some brokers may not be able to process requests for changes in leverage immediately, even if they are possible. It is better to open additional accounts that have low leverage and can be used for high volatility trading.
Portfolio diversification: A safe way to trade forex long-term is to diversify your portfolio. Large institutions diversify their portfolios by using a variety of instruments from different markets. High volatility can make diversification more difficult. This method can be very profitable in times of high volatility and choppy forex markets.
If in Doubt, Move Away. Forex trading is safe. Do not open positions if you are unsure. Instead, look at the direction of forex markets until you find the right opportunity. There will always be opportunities, but don’t get too greedy in volatile forex markets. It doesn’t mean that we have to be always active in the forex market. We cannot always take every pip the market offers when it moves up or down. Keep in mind that profit is our ultimate goal. It’s never a bad idea to wait for a great opportunity.
