Make Your Trading Corona Proof
With 96,218 confirmed cases and 3,303 deaths so far, according to Worldometer statistics, the coronavirus has been taking a heavy toll on humankind. Projections that the disease has much more to spread would better make people around the world much more cautious. If there is a single most important quality on which individuals should focus in the face of this imminent biohazard, this is definitely adaptation, in all possible forms.
On March 3, the “Group of 7” of wealthy countries committed to adopt stimulus packages to address the adverse consequences of the coronavirus but failed to take coordinated action at this stage. The finance ministers of the G7 announced in a conference call that they were “closely monitoring” the situation, a clear sign of their “too little too late” approach of handling crises. On the same day, markets were equally unimpressed by the US Federal Reserve’s emergency move to cut the main interest rate by half a percentage point to a target range of 1.00% to 1.25%.
It looks like traders should brace for more volatility in the coming weeks and months. They should be prepared for sharp fluctuations and adapt their strategies accordingly. In this sense, there are several principles which should be taken into careful consideration. Those are:
Choose your positions size(s) wisely
The increased volatility expected in the short- and mid-term warrants trading to be conducted with smaller positions, so that sharp moves in either direction do not result in the complete wipeout of an account.
Use your best judgement to time the market
Just “knowing” the “right direction” in which the market will make its next move is not enough for a trader to be successful in the long run. Good timing is absolutely critical in leveraged trading, as it plays a key role in the risk-return ratio of a potential trade and, from there, on the final decision whether the position is worth opening or not.
The use of a stop loss order is an absolute must
The stop loss order is the first thing that should be determined once a market participant decides to open a trade. It is the best and, in many cases, the only risk management tool one has at his disposal. For this reason, stops should be placed below/above key technical levels (depending on the position’s direction) to make sure that there is a protective buffer for the capital in the event of an unfavorable market move.
Do not risk your entire account on a single trade
Of course, the same applies equally to putting the entire capital at stake on just a few trades. Choosing the size of your positions wisely, timing the market, and using stop-loss orders with every single trade would allow you to have firm control on the risk a position has on your account. Our advice, in this respect, is not to risk more than 2-3% of your capital on a single trade.
We hope that this short article is useful for you. However, bear in mind that the text above is purely educational in nature and reflects the author’s opinion only. For this reason, none of its contents should be taken as investment advice, nor as a recommendation on speculative buying or selling of any financial instrument.