Before we recommend that trading in a volatile market is beneficial, let us know what is volatility and volatile market?
What do you mean by Volatile Market?
The tendency of a market to rise or fall sharply within a short span of time is called Volatility. It is a statistical measure of rising or fall. Traders and analysts can evaluate the volatility of the market arithmetically by the standard deviation of the profit gained from the investment. The standard deviation is fundamentally a concept of statistics. This concept represents the variation or deviation, which is expected by the analysts.
Why must you trade in a volatile market?
Generally, it is recommended by experts that one should trade in the volatile market since good revenue can be generated. The reason why good revenue is generated is that there are quick changes in momentum of the stock price. However, if you are extremely confident in your strategy then you can even hold the stock.
Dos of trading in a volatile market
Due to this large price variation and intense trading in the volatile markets, traders are given orders to trade in one single direction. Trading in one single direction means that if you are buying a stock then you must only buy the stocks, do not sell. Similarly, if you are in the direction of sell then do not buy any stock.
Factors responsible for volatility
There are many factors, which are responsible for the volatility in the market of stocks and commodity. Out of many, following are few reasons that cause volatility
- The release of economic factors,
- Company news
- Suggestions from veteran analysts.
Volatility is necessary for traders to get profit. Neither the traders nor the investors are benefitted with the slow- moving markets. Thus, to stay in profit, you need a volatile market but with hint. However, the traders, who have just started with trading, must never be active in the very volatile market. They will not predict the changes in the market and hence will do blunder. Volatility may hurt the traders, who do not trade with strict stop loss. Do not forget that every coin has two faces, so if volatility is bane then it is also boon on another hand. You can take advantage of volatility by trading the small charts like 15-minute charts or 5-minute charts. The smaller the timeframe of the chart, a faster trader can view the change of momentum in a stock price.