How to deal with volatile currency pairs? 2 simple steps
Want to make forex trading successful? Look at volatility positively. We show you how to reduce potential losses while you power up your experience level.
“Should I trade when the market is this volatile?”
This is a question I received from an individual last Friday. In my opinion this is a question that traders must answer for themselves because individuals understand their personal psychology as well as financial situation best.
My personal take
On the other hand, I would like to contribute my opinion which I hope will lead to your long term forex trading success.
- The easy response is to stop trading for a while but a warrior does not does gain experience and recognition by staying away from battles.
- Decide if you truly want to make forex trading a permanent and successful feature in your life.
- If the answer is yes, volatility (including potential pain that comes along) cannot be avoided.
- Look at volatility positively: high impact news like SNB’s decision to terminate the EURCHF peg happens only once in a blue moon. Each event can add a huge level of power up to your experience level.
- The key to dealing with volatility is to take steps to reduce potential loss.
2 simple steps to reduce loss while you power up
Step #1 – Refrain from scalping
Noise on small time frames can be career-ending. Move away from small time frames to swing trading on high time frames.
Besides scalping is a really costly activity compared to swing trading.
Step #2 – Reduce your position size and widen your stop
If you half your position size, you can double your stop loss level and still keep potential loss the same. Consider that
Potential Loss = Position Size x Stop Loss
A $500 potential loss can be a function of 5 mini contracts and a stop-loss of 100 pips or the same $500 loss can be a function of 2.5 minis and a stop loss of 200 pips.