Menu

Should you trade directionally in volatile markets?

0 Comment


Directional trading can be highly profitable when the market is trending, but whenit’s not, then trading directionally can be a huge challenge.

Directional trading strategies are much simpler and easier to implement compared to non-directional trading strategies.The directional trading strategies rely on the predictions of the market movement within a specified time frame. It is believed that market moves in one direction. The truth, however, is that forex market is moving in a non-directional mode and predictions, therefore, are futile, even dangerous, if it could lead to significant losses.

It is therefore for these reasons that most traders make use of the former, in particular for beginners with little comprehension of the other approaches and strategies, often termed as ‘complex.’However, with a slow and harsh economy like what we have now, the use of non-directional trading strategies is ideal and less risky. Even beginners can earn money using it.

I have noticed that trying to catch the short term swings when the market is acting crazy is not necessarily the smartest thing to do. You could get stopped out early or have the stock go in your favor one day and then suddenly reverse on you the next day.

The reason trading directional can be hard at times is because the market doesn’t even know what it wants to do. Stocks may go up hugely one day and give it all back the next day. Trying to run back and forth between the two can be stressful.

So what do you do when all seems lost, because the truth is, directional trading can be a little bit crazy and can make you go nuts too. My advice is that you try to make use of some market neutral strategies such as the reverse iron condor, diagonal spread, or maybe just a simple credit spread.

You will not be hitting it big with these strategies only that the risk associated is minimal compared to directional trading strategies. Therefore, it will be good to make some income as you wait for the market to decide which direction it will move.

Instead of worrying about how to trade a market that isn’t moving in any direction, it is much simpler and easier to sell some far ‘out of the money’ options and let those options expire as the market starts to make up its mind. Or you could sell some of ‘out of the money’options to possibly get into some value stocks. Only that this is best done with capital that you are comfortable putting in for a possible long term investment.

Volatile markets are different than trending markets. If you are losing money trying to trade directionally right now, maybe it’s time you rethink your strategies for these markets and look for something thatwon’tlose you more money.

A proper understanding and careful implementation of neutral options trading strategies together with good timing can mean a great opportunity to earn impressive profits despite the current economic situation.

Leave a Reply

Your email address will not be published. Required fields are marked *