Few realities unsettle investors more than extreme market volatility. Whether it’s stocks, crypto, forex, or or commodities, when prices swing wildly, nerves follow. Significant events, economic forces, and shifting sentiment can spark turbulent conditions, and finding a way to ride them takes more than guesswork.
Zak Westphal knows volatile markets better than most. Before co-founding StocksToTrade, a versatile platform built for active traders, he cut his teeth in penny stocks, an infamously turbulent arena. He learned to spot opportunities and control risk amid dramatic price jumps there. He now shares his hard-won wisdom to help traders endure and thrive in erratic settings.
“To me, volatility signals opportunity – if you approach it right,” Zak says. “Respect the madness, engage in risk management, and stay nimble and informed. Do that, and you can ride out the storm – maybe even come out ahead.”
Ready to equip yourself for whatever markets may bring? Let’s dive into Zak’s battle-tested tips…
Understanding Volatility
Before getting into the specific approaches Zak recommends for trading these markets, it’s key to understand what market volatility means. Simply put, volatility refers to how much trading prices swing up and down over time. When prices jump around like a rollercoaster, volatility is high. Whether you’re looking at stocks, bonds, currencies, or crypto coins, this goes. A few things can stir up market volatility – economic reports, political drama, investors getting worried or excited, big surprises in the news.
“Volatility gets a bad rap, but it’s not always a terrible thing,” Zak points out. “Rapid price changes create opportunities to get into and out of trades at a profit. The catch is you’ve gotta know how to manage risks, not panic when your screen turns red.”
The Importance of a Plan in Volatile Times
While a solid trading plan always matters, it becomes vital when volatile markets grow. A plan supplies a framework for making level-headed choices, even when anxiety creeps in.
“When prices start jumping all over, it’s really easy to get swept up in the mania,” Zak explains. “Greed and fear take over. That’s why having a sensible plan, crafted with a calm mind, is so essential. It keeps you grounded when others lose their heads. It prevents you from making reckless, spur-of-the-moment calls you’ll regret later.”
Your trading blueprint should outline straightforward entry and exit rules, risk limits, and guidelines for shifting tactics based on conditions. It should apply to any markets you dabble in.
Strategy 1: Focus on Risk Management
When volatility spikes, safeguarding your capital becomes priority number one. This entails taking steps to cap losses on every trade, regardless of what you’re trading.
As Zak stresses, “When the markets get rough, my main focus flips to preserving capital. It’s all about controlling losses and protecting what you’ve already got. That’s more critical than boosting earnings when conditions are erratic.”
Here are some key risk tools to have handy:
- Stop-Losses: These exit trades automatically once prices hit your preset cutoff, restricting potential damage. They work across most markets.
- Position Sizing: Tailoring trade sizes to your appetite for risk and the asset’s turbulence.
- Diversification: Spreading funds over different assets (where possible) or varied instruments within a sector to minimize any single dud’s impact.
Strategy 2: Pounce on Short-Term Swings
While long-haul investing is always sound, volatile times can also unveil chances for quick-fire trades. Zak’s education in penny stocks gave him valuable insights that apply more widely.
“Although long-term buys always deserve consideration, turbulent markets let you capitalize on price jumps and dips over hours or days,” Zak explains. “I learned to spot patterns and use them to get in and out of positions rapidly, banking little profits that accumulate. This style works across other fast-moving sectors.”
Techniques like scalping (micro-short trades), day trading (opening and closing within 24 hours), and swing trading (holding for days or weeks) can pay off when prices oscillate. However, these bring significant risks and require substantial skill, experience, and market understanding. They aren’t for everyone.
Strategy 3: Utilize Technical Analysis
Technical analysis, the art of deciphering price charts and patterns, proves especially handy when markets grow volatile. This applies whether your arena is stocks, forex, pennies, or crypto.
As Zak explains, “Studying the charts can help you spot trends, support, resistance marks, and potential flips. When prices go haywire, these technical cues offer useful pulse-checks on market sentiment and likely movements.”
Indicators can be handy for gauging turbulence and fine-tuning tactics accordingly. Many charting platforms enable overlaying these metrics on price charts across various assets.
Strategy 4: Stay Informed, But Tune Out Hype
Remaining updated on potential market movers is crucial. Yet it’s just as vital to filter noise and avoid knee-jerk reactions to flashy headlines. This rings true regardless of your trading arena.
“You gotta keep sharp by continuing to learn,” Zak emphasizes. “But don’t become hostage to the 24/7 news frenzy. Much of it is fabricated drama, speculation, or old news spun as breaking. It creates panic and clouds judgment.”
He says, “Instead, selectively tune into developments that could seriously impact your existing positions or plan. Are oil supplies tightening, raising questions on production levels? Is speculation mounting over interest rates? Get the need-to-know stuff that affects your strategy.”
Zak concludes, “As much possible, develop some detachment from the short-term winds. Don’t overreact or make sudden big shifts. Have scenarios mapped out in advance for responding to big events.”
The goal is insight into trends – not noise.
Final Word
“Trading when prices jump around isn’t for everyone,” says Zak Westphal. “But if you prepare properly, craft a plan, and control risk, it can be enriching.”
The core principles remain the same in calm or volatile times. Do diligent research, size positions wisely, use stop losses, and watch the charts. Volatility will challenge your nerves. But if you meet it prepared, who knows – you might just thrive in the storm.
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