How to Manage Risks When Trading in Volatile Periods

Trading in any environment will always carry some risks. You can’t expect to start spending your money on stocks, futures, and currencies without encountering some risk on the path to success. However, when you’re in a highly volatile market, your risk might be a little higher than most.



This is often why many experts spend years learning how to master multiple trading environments before they jump into highly volatile spaces for trading. However, there’s nothing stopping you from exploring your options whenever you choose.

Fortunately, the more time you spend in the trading landscape, the easier it is to determine how you’re going to mitigate your risks as much as possible. Risk management tools, techniques and strategies make for a valuable part of any wealth building strategy. When you’re planning on how to strengthen your standing in the long-term, you should have various volatility preparations in place.

Start with Smaller Portion Sizes

One of the most important rules of successful trading is making sure you know how to diversify. Just because a certain sector is growing at a faster rate right now doesn’t mean that you should put all of your eggs into one basket. Think about how you can spread your risk around evenly by investing in various uncorrelated sectors that allow you to hedge some of your risk. At the same time, it’s a good idea to start with smaller portion sizes when you’re investing in volatile opportunities.

Sizing down your positions can give you additional protection against excess risk. You can stay more focused when you have fewer positions to keep track on, and you reduce your chances of making bad decisions based on fear or greed. Holding too high of a position in a volatile market means that you’re more likely to lose out on capital if things don’t go the way you expect. Start small and remember that you can work your way up in the future.

Implement Stop Loss and Limit Orders

Most brokerage accounts in the digital world will allow you to implement tools that can significantly reduce your risk. By using trading risk management strategies, they often involve using stop losses and limit orders that assist with reducing your spend.


In a highly volatile market, wild price swings usually come from differing opinions between buyers and sellers, but these changes can lead to a significant panic in people with high investments, which leads to more emotional trading.


In an emotional trading space, you might notice that your current strategies aren’t working as well as they once did.

During these moments, it’s a good idea to slow down and make sure that you have stop and limit orders in place.


This will reduce your chances of making decisions based entirely on emotion yourself, because you’ll have guidelines in place to hold you to your strategy.You can even consider widening your stop loss placement, so you’re not pushed out of trades earlier than you would have liked. Be careful about the way you place these limits and trust them to help you.


If over time you notice that your stop and limit orders aren’t working as well as you thought, you can always make the decision to adjust these even further.

Hedge the Risks of Volatile Trades

Trading in volatile environments can be an exciting way to increase your potential profit at speed. However, it’s also a very risky move that could easily lead to huge losses too.


Hedging your bets means diversifying your strategy so you’re trading some fewer volatile instruments alongside the high volatility spot trades. Experts refer to this process as trading vanilla options alongside spot trades. This risk management strategy allows you to reduce some of the risks of your volatile trades, because you know you have another source of cash if your attempts don’t work out. For instance, you could consider combining your volatile spot trades with options because your premium is the only limit of what you can lose.

Implement options into your trading strategy also means that you can stand to lose a lot less than you would if you were using instruments to trade instead. If you’re not sure how to hedge your bets and adjust your trading strategy with options, you can consider looking into the various tools available online.Many brokerages can also give you insights into the different trading vehicles that you have so you can mix and match your strategy accordingly. Alternatively, you could consider speaking to a financial professional about getting the balance just right.


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