Holding a strong position in a highly volatile market

Holding a strong position in a highly volatile market

When crypto market movements become unpredictable, many traders lose comfort in the process of trading. The advantage of high volatility (strong upward and downward price movements) is the rapid achievement of target levels in specific transactions — hence the possibility of rapid and significant earnings.

However, price fluctuations caused by political or economic instability, natural disasters, or unexpected news have a negative impact on the trading process. You have to quickly adapt to the changed conditions not to lose most of the funds.

Show discipline, set the realistic goals and follow the plan

Put emotions aside. Make a purchase/sell decision based on fundamental or other analysis and taking into account the financial condition of the issuing company. When the market becomes chaotic, the importance of the right choice of assets increases. At first:

1. Make a list of promising companies and crypto;

2. Perform a technical analysis;

3. Find the optimal entry and exit points, taking into account the price movement.

After opening a position, follow it:

• set realistic levels of target profit and acceptable risk;

• follow the plan: close position after reaching the levels

Don’t try to exceed the results of most traders or overtake the market. Even the professionals rarely manage to do it. In addition, you have to assess your tolerance for risk in advance.

It would help if you didn’t actively trade the entire portfolio. The recommended value is 20–30% of the total number of assets. The rest is generally regarded as the main investment. That is, most of the funds should be diversified and directed to long-term investments. For proper diversification, you should create a scheme yourself or under the teacher’s guidance.

Shock resistance: position scaling and limit orders

Many people mistakenly believe that they have a high tolerance for risks. Confidence decreases when the “bearish” phase of the market begins. Therefore, you should properly assess your ability to withstand shocks and losses before the crisis. You should still be able to maintain an acceptable standard of living and pay for current expenses.

Don’t open too large positions, as they are more difficult to manage, especially when the price goes contrary.

Use scaling:

• sell some crypto after receiving the target profit;

• buy more on kickbacks;

• close the position when the price reaches the top.

Give preference to limit orders when the market is closed or volatile. Market orders are suitable for trading highly liquid assets during the current session (without moving position overnight).

Limit orders allow you to set the boundary price at which you are ready to sell/buy. To reduce the risk, use stop, stop limit and trailing stop orders.

Trading with the trend and reducing the total risk of the portfolio

It is difficult to catch the exact top or bottom. Attempts to trade against the trend are also rarely successful. You risk being trampled by other market players. It is much easier to follow the direction of the momentum.

There are simple criteria for technical analysis: the upward trend corresponds to consistently rising High and Low, and the downward — vice versa. Depending on the characteristics of the trade, you can consider daily, weekly, or monthly charts.

The need to scale positions and take profits has been mentioned earlier. In conclusion, I want to say that when the volatility exceeds the average value, it makes sense to transfer the earnings into cash.

Then you will be able to reduce the total risk of the portfolio. If you are not sure about the future direction of the market/specific paper, it is better not to open a position. Sometimes staying away is the smartest thing to do.

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