All markets and currencies experience highs and lows from time to time. But there’s almost no modern precedent for the global economic impact of the coronavirus outbreak. As the pandemic sweeps through nations around the world and forces normal business operations to, more or less, grind to a halt, countries are experiencing their own local economic slowdowns, with the larger global economy headed for a deep recession.
Every investor is paying close attention to these changes and what they might mean for their portfolio. If you’re a forex trader, the action taking place among currencies may be a little harder to understand. As some currencies around the world take a tumble, the U.S. dollar and other so-called safe-haven currencies have maintained their relative strength on the forex market—but given the market’s volatile condition, anything is liable to happen in the future.
With such unprecedented and unpredictable market conditions, what’s a forex trader to do? Is now the time to hunker down and wait out the storm, or should you stay active in trading and revise your strategy to suit these new circumstances? Here are five portfolio management tips to help you make sense of this strange new world.
1. Use Stop-Loss Orders to Avoid Dramatic Losses
If you want to stay active on the forex market but are afraid of falling victim to sudden currency crashes, the solution is simple: Whenever you open a position, set a stop-loss order to sell out of your position if the currency pair takes a tumble.
Stop-loss orders are a smart strategy in any scenario, but they can be especially useful in situations where volatility offers significant reward and significant risk. No matter how confident you are that a currency pair will swing in your favor, use stop-limits to bail yourself out if your prediction turns out to be wrong.
2. Take Advantage of Market Volatility
The strongest case for continuing to trade during uncertain times has everything to do with the uncertainty of the market. Forex traders depend on currency volatility to create the price movements that let them take a profit from opening a position. The market’s current volatility may pose challenges in predictability, because the factors at play are so unfamiliar to most traders, but that volatility is a great incentive to create a trading strategy that can capitalize on price movements.
Keep in mind that you may not be able to successfully stick to your typical trading strategy. With news breaking around the clock, certain indicators and trends may not offer the predictive value you’ve grown accustomed to.
But there are still steps you can take to develop a trade evaluation strategy that can successfully identify currency volatility that represents a high-value opportunity for willing traders.
3. Pay Close Attention to Global Economic News
Chart patterns, technical indicators, and other data sources might still be relevant when you’re evaluating trade opportunities. But given the fast rate at which coronavirus news continues to develop across the globe, it’s likely that global economic news will have an outsize role in affecting price movements for the near future.
Governments are taking aggressive action to shore up their own economies, and new outbreaks and developments are changing the state of affairs for individual countries and the world at large. The global economy, more or less, collapsed within the span of a couple of weeks in March. Although such developments are a challenge because traders are always operating in reaction to them, they may still represent your best source of information when you’re evaluating trades.
4. Don’t Make Trades Based on Emotions
The current forex market movements can be unsettling at best, and panic-inducing at worst. If the market instability is shaking your confidence in your forex trading strategy, it’s normal to struggle with anxiety and fear.
There’s nothing wrong with having emotions based on these dramatic changes. But acting on those emotions, while ignoring the facts and concrete data, is a recipe for disaster. The worst thing a trader can do is make an impulsive trade in an effort to recover losses from a past transaction. Resist this temptation: Never engage in trading if you can’t keep your emotions in check. The economic impact of the coronavirus is bad enough on its own; adding your own emotional turmoil will only put you in a more precarious spot.
5. Remember: Bear Markets Are an Investment Opportunity
Volatility and uncertainty may raise an alarm among traders and investors, but it’s not all bad news. A bear market actually offers an opportunity for traders looking to capitalize on discounted currency pairs, assuming the trader believes those currencies will rebound in the future.
If you play your cards right, study up on the causes of market volatility, and time your trades wisely, a bear market can work out in your favor. Opportunities to turn a profit are still out there—it’s just a matter of finding them and taking advantage.
If you’re still worried about suffering steep losses from this market instability, remember that certain online forex platforms like Valutrades offer guaranteed negative balance protection, which means you can never lose more than the balance in your account.
Whereas other brokers might put your account into the negative and demand that you make up the difference, guaranteed negative balance protection provides yet another layer of security to help you face this market instability head on—and hopefully come out of this economic chaos even stronger than you were at the start.
The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.