Thursday, December 8, 2022

How to Trade Volatile Markets: 5 Expert Strategies to Trade Volatile Markets


Volatility, particularly across asset classes, has a tendency to bring out the best and the worst in investors. For those who use expert-led trades, it’s all too easy to get caught out by choppy, low-return trading environments. But there are ways of improving the odds of success when markets are highly volatile. In our new analysis, we look at how some of the world’s top investment experts make their money by calling the right trade at the right time.

Virtually every investment analyst will say that a 20% drawdown, or drop, represents a huge overreaction by investors. But this doesn’t mean they’re 100% correct in their analysis of the situation. There’s the flip side of every trade.

The Volatility of Volatile Markets

As the bull market in U.S. stocks that began in March 2009 peaks, volatility is creeping higher and making it more difficult for investors to keep the ride going. Historically, markets have been kind to value investors when they have found real and perceived value, but even that isn’t sufficient to preserve profits when markets become volatile.

U.S. equities have done extremely well in recent years, with the Dow Jones Industrial Average DJIA, -0.41% gaining 325% since March 2009.

While this year has been nothing short of astonishing, that pace has left valuations stretched, which investors expect will be easier for the market to digest over the coming months.

5 Expert Strategies to Trade Volatile Markets

Investors need to have a long-term mindset when trading volatile markets like those that exist now. Uncertainty is all around us, and often it is hard to make up your mind. But remember that volatility is normal. And by managing it to some extent, you should be able to build a sustainable trading strategy that produces good returns.

To help you avoid emotions and emotions being the root cause of losing money, we asked the experts to share their best strategies for trading volatile markets.


Stuck in stock market traps? Want to profit from the market pullbacks? Then, you need to consider a couple of investment options, including short selling. Don’t worry, we’re not talking about a Black Friday when stock prices fall on average 80% from the previous day’s closing prices.

With short selling, there are strict rules for entry and exit, plus a maximum time limit. The theory is that the short sellers can close out the position quickly and with as much profit as they can afford. So, to explain, let’s first examine the options, followed by the pros and cons of each of them.

The first is market dumping. You can invest in a select group of securities and then use the proceeds to buy another one in that same sector, thus profiting from price decline.

Trend Trading

It is hard to predict where we are going. Trade is risky. Volatility is risky.

There is a myth that the more volatility we see, the more risky it is to trade. In reality, volatility has nothing to do with a trading strategy, it is more related to your personal characteristics. It is about your comfort level to deal with uncertainty. It’s about managing risk and keeping your expectations in check.

Many think of trading as a high-risk activity. That is mostly true. You have to be highly adaptive to deal with it.

We are no doubt living in very challenging times right now. In addition to geopolitical tensions and economic uncertainties, we are also witnessing extreme volatility in markets across different time frames, regions, and asset classes.

Position Trading

Most investors hate trading. Every investor wants to buy high and sell high, but few can actually execute the strategy consistently. While stock market investors are confronted with the highest returns in the world, extreme market volatility can cause all kinds of problems. Volatility can make it difficult to get a comfortable and solid sleep. It can cause investors to lose confidence and focus when a bull market is hot, and it can cause them to make irrational and emotional decisions when a bear market arrives.

For a more detailed explanation of why volatility is so unpleasant, and for the recommendations of how to handle it, please read this article. If you are a trader, then you should definitely take a look at this article.

Dollar Cost Averaging

Managed futures can be a great tool for traders looking to manage their risk but maintaining a track record of trading is vital to making money. While trading volatility can be very lucrative, you are at the mercy of the news and market movements.

Volatility in a highly volatile market can be unpredictable and is not to be ignored. Especially if you have never used managed futures, you need to be very mindful of the risks involved in any market where the most shorting opportunities are available.

The safest strategy for both you and your portfolio, is to reduce your risk where you can and take advantage of the volatility to make money. Although you can never eliminate risk, you should ensure that you are always staying within the limits of your risk tolerance.

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