Year 2018 was the year full of multiple economic events, which lead to the rise of volatile market conditions. It was difficult to handle the ups and downs in the market. However, there are certain key takeaways from the 2018 volatile market, which every investor should know about.
Trade small, for bigger moves
Higher volatility means the price will traverse larger territory. Since price swings will be large, the ability of smaller positions to make meaningful profits is significant. Smaller positions also allow you to have better cash management for derivative margins. Stop loss levels become more logical when you trade with positions which are manageable for wild moves.
Diversify even in trading
Do not focus on a particular sector. Have stocks and positions in a number of sectors, preferably least correlated to each other. This allows cool heads to prevail when markets move wildly. The trick is to keep the universe small, but diverse.
Always maintain perspective
History shows that, stock market has been able to recover from declines and can still provide investors with positive long-term returns. It is essential for every investor (seasoned or budding) to remember that downturns are normal and short – lived, hence always maintain perspective.
Keeping it simple and sticking to your rules is most important in volatile markets. Adapting to changing instability and keeping an eye out for options implied volatility, daily high-low swings, open interest and volumes should be a trading ritual. Make optimal use of these key takeaways and brace yourself for 2019!
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