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Trading in Forex Market’s Explosive Nature

Markets at the end of the day are markets! Volatility is an innate nature of markets and to turn in an unexpected way, is one of the idiosyncrasies of markets. At times of volatility, a trader may see a downslide- an inevitable one! But a rethink of the strategy is all that a trader needs to do in such a situation to hang on in the erratic market.

Some of the things that a trader must be looking at during the times of volatility are:

• Decrease in Leverage: Leverages have a direct effect on the trade. While otherwise it maybe a profitable affair to have bulkier propositions, at times of volatility the leverage may compel an investor to opt for smaller trading positions. The bottom line- one needs to have a keen watch on how the leverage is affecting one’s portfolio and must soon identify (and then implement) the ways to decrease the leverage.

• The Usage of Tighter Stops: Yes, even though it may come as a surprise to many of the traders and investors, using tighter stops is one of the intelligent things to do at times when volatility is lurking around.

• Trade Selectively: The times of volatility is the best time to invest, but intelligently! When the market goes wild, many traders too let their wild side roam free and that’s how they contribute to further big losses. Be selective while trading. Do have a more pragmatic assessment of the situation and the risk tolerance levels involved. It’s only after this weighing of the concerned matters, should one allow himself to trade heavily in the market.

• Develop a Trading Strategy and Stick to it: The development of trading strategy is where one needs to put in more effort and brains. A strategy that is relevant and is flexible, a strategy that sees the future and taps the present is required and once done with it, the execution needs to be handled wisely for the good swing of events.

• Abreast Oneself with the Current Economic Events: This is probably one of the best ways to find the hidden opportunities and even the hidden potholes!

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Added: Sunday, February 22, 2009

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