One of the difficulties of trading forex is changing levels of volatility. Volatility measures how much the market has moved over a specified time. Finding profitable trading opportunities can be challenging when volatility is low and frustration leads to making losses. However, traders who can adapt their trading strategy can maintain their profitability when volatility falls.
We have listed some tips to help you improve your trading performance to help you become a better trader. These tips apply to short and long-term traders.
Adapt your strategy
The first step when markets become quieter is to adapt your trading strategy. When volatility falls, it is usually best to look for range trading opportunities, sell near resistance, and buy near support. There will be fewer trading opportunities, and you must be more patient than usual to find trading opportunities. Wait for the market to stop and resistance and turn lower rather than entering before the market touches resistance to improve your trade timing. Another option is to trade a longer-term strategy; instead of scalping or day trading, look to hold positions for multiple days.
Change your risk management parameters
Making large profits when volatility falls is more challenging, so reducing your profit target can be beneficial. Reducing only your target will reduce your risk-reward ratio, so reduce your stop loss by a similar amount to keep the balance between target and stop around the same level. If you reduce your stop loss and target, your risk and profit per trade will fall. To maintain profitability, increase your position size, so your dollar or yen risk per trade remains at the same level.
Look to change markets
If your market has been quiet for a couple of weeks and shows no sign of becoming more active, trading another market might be beneficial. Changing markets can be difficult as each market has different characteristics. Only change markets when you think there will be few trading opportunities in the coming weeks and months. Changing markets too often will make it hard to understand the market.
Take regular breaks
Staying focused on following your trading strategy can be more difficult when the market becomes quiet. When the market is moving in a small range, the temptation to change your trading strategy to enter a trade can be difficult to resist. To remain focused when the market is quiet, take regular breaks and enjoy the time to relax.
Look for news
Markets are usually quiet due to a lack of news. Therefore, search for upcoming news events which could change the market`s condition and increase volatility. While economic announcements are the most watched used event by most traders, being aware of speeches of central bank officials and other financial news is essential.
Improve your trading skills
Quiet markets are an ideal opportunity to improve your trading skills. The current market might be quiet, but you can practice trading on historical data and develop new strategies. Analyze your recent trading performance and look for ways to improve your trading process, so you are ready to take advantage when volatility increases again.
When markets become quiet, accept the market`s condition and be proactive in adapting your trading strategy to the current market. Experience in different conditions will allow you to quickly realize the market has changed and use a new trading strategy to allow you to remain profitable.