Trading in volatile markets can be exciting as well as risk-bearing for traders. To navigate the ups and downs of such markets, here are 10 tips and strategies to follow:

1) Become a News Chaser: 

Keeping track of the market trends and major events in the market is essential.

As a trader, if you want to invest in a volatile market, one has to stay informed about the latest financial, economic, political, and business news.

Thus, it’s essential to spectate the news regularly. The news is especially related to macroeconomic factors, i.e., knowing the central bank policies, subscribing to market analysis, geo-political events that could affect the market, and monitoring economic data releases.

The micro factors such as regularly spectating the financial and business updates related to a company should be part of the daily analysis. You should find reliable news source/s and use economic calendars to monitor key events that could impact your analysis.

For example, keeping track of market holidays when the market is closed can be tracked from the National Stock Exchange (NSE) website. Thus, staying well-informed can help you become a successful trader in a volatile market.

2) Discipline is the key: 

If you see waves in a stormy sea, and you are on the ship navigating over it and compare it with a similar situation of being a trader in a volatile market, then you could see knowing your routes or having pre-defined plans will help in such a market.

Your trading plans should clearly define the entry and exit points, position sizing, and risk management strategies. 

Don’t let fear or excitement ruin your plan, sticking to your plan would maintain discipline and stay focused in a volatile market situation.

3) Know Your Risk Appetite: 

You must only invest funds in the market to the extent that you may afford to lose. Be prepared for the worst scenario in trade, and the potential losses it can make.

Using stop-loss orders can automate this process, ensuring that you exit a position if the price moves against you beyond a certain point. In highly volatile markets, it’s even more important to carefully consider the size of your positions. 

Avoid overleveraging your trades, as this can increase both gains and losses. Keep your position sizes reasonable about your account size and risk tolerance. Diversification is essential in volatile markets to spread risk across different asset classes and sectors.

Avoid overexposure to any single asset or market, as this can increase losses during turbulent times.

4) Make Volatility your friend: 

Volatility can be risky, but it can also offer you opportunities. Adjusting to market situations, having a proper understanding of technical analysis, and the capability to act quickly in a volatile market can help you make profits in such market situations.

A strategy that works well for you in a stable market situation may not work well in a volatile market situation.

Thus, fine-tuning the market situations in a volatile market. Strategies like diversifying your market portfolio, hedging, and investing for the long term can help make you come out of the adversities in a volatile market.

5) Focus on Liquid Stocks:

When you are trading in a volatile market, it’s significant to focus on highly liquid assets. Highly liquid assets are stocks that can be easily bought and sold on an exchange.

If you take low-liquidity stocks, it may seem attractive as it has the potential for higher returns. But, during an exit in a volatile market, if the market conditions change, then it may be difficult to exit.

Thus, investing in high-liquidity stocks while trading in a volatile market can help you tackle risks arising in such a market situation. Examples of highly liquid assets are Money market instruments, Treasury bills, Exchange Traded Funds, etc.

6) Technical Analysis: 

Traders use technical analysis as one of the popular methods to identify market behaviour and help identify potential entry and exit points in the market. 

You can imagine it like a treasure map, which involves charts and indicators to create a market map.

Traders study chart patterns that suggest potential trend reversals, examine trend lines that show the overall price direction, and support levels that indicate areas where prices might spring back. However, you must note that technical analysis solely doesn’t provide a foolproof plan.

Price movements can be irregular in highly volatile markets, making them less reliable in a volatile market situation.

7) Don’t Be a Sisyphus: 

Sisyphus is a character in Greek mythology who was punished by the Deities for pushing a big-sized stone uphill, only to watch it roll back on a repeated basis.

If the market shows a strong uptrend or bullish trend, then you, as a trader, should look for opportunities within that trend.

However, if the market is down-trending or bearish, you should be cautious about buying, and instead, you should focus on identifying potential shorting opportunities.

If you attempt to catch the bottom of a falling market or the top of a rising market, then, it is a matter of caution and may fetch your losses.

8) Patience is a Virtue: 

Don’t be desperate like a child who wants to purchase candy from a candy shop, who wants to grab every attractive candy that comes his/her way. 

Similarly, you can visualise yourself in a volatile market condition. There will be many trends that might seem to be lucrative in a volatile market, but it doesn’t mean that each of such trends has a potential for you to incur gains.

You must wait for the right opportunities based on your trading plan and analysis. In the fear of missing out on trades, don’t chase the trades. Keep tracking the market and wait for the high profit-making opportunities to emerge. Keep your calm and patience by that point.

Further, keeping patience in long-term investment to fetch profits in a volatile market is the key to success. Moreover, you need to be flexible and adjust according to various trends in a volatile market.

9) Secure Your Profits:

Visualise yourself finally catching the tide you have been waiting for. Don’t let your craving get in the way that would cause you to ride it to the shore.

Similarly, you should take the profits when your trading strategy reaches its targets, especially in volatile market situations. Acquiring or locking in profits ensures you don’t lose out on gains due to sudden price swings.

10) Have an alternate plan and know when to walk away:

You must know when to walk away from a market situation arising due to volatility in the market. If the market conditions aren’t reliable and unpredictable, stepping away and returning when things seem settled is fine.

When the market conditions don’t fulfil your trading style, it’s better to be on the side-lines rather than focus on that. Your trading style includes your risk appetite, i.e., the extent of investment you can make with the given market conditions.

Having a alternate plan is also important so that when you walk away from a particular market trend, you know what else to do. You may also determine in advance how to react in different market situations in a volatile market.

By following the above tips on how to invest in a volatile market and using a disciplined and flexible approach, you may mitigate the risk in the volatile market. Further, you may improve your chances of being a successful trader in a volatile market.

Remember that volatility presents risks and also may give you opportunities if you know how to trade well in such market situations.

Further, subscribe to Unicorn Signals to talk to our Analyst regarding volatility trading for beginners, learn more about volatility trading strategies, and learn how to invest in volatile markets.

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Disclaimer: Investing in the Equity market in India is subject to risks, i.e. the market keeps on fluctuating. This article is purely for educational purpose. The views expressed and data provided here are by Equitypandit’s team. Kindly do not completely depend on the information provided as the risk appetite differs from individual to individual and there are various other factors in the market to determine the factors to invest in the market.