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Trading: it’s not about being right, it’s about being right at the right time

As we hear on the news every day, the FTSE and other major indices have been on a great bull run. The reason for this is fairly simple: when interest rates are low and you want some return on your money where do you put it? In trustworthy blue-chip stocks. If you were a US investor where would you rather have your money: Greek government debt or Google shares? Even at $581 per share it is safe to say these shares are going to be in demand and hold their value.
However, as the latest wave of anti-terror strikes hit Syria it is clear that the economic situation of the UK, Europe and the world as a whole is not the only fear factor driving the markets. Once again, with untold billions of dollars needed to fund a long and unpleasant bombing campaign, world markets are starting to become more volatile and people are assessing the impact both globally and domestically this will have on the world’s biggest economy: the USA.
With volatility comes the ability to play out shorter-term trades that will yield vastly greater rewards than in ‘normal’ market conditions, with the exact same risk on the downside of course. For every winner in trading there has to be someone on the other side. This means that people who have invested in the FTSE and other major world indices may now be liquidating long-standing investments. Also with the record highs in the indices there is the ability for retail and institutional traders alike to take advantage of short-term investor fear.
When approaching volatile markets there are a few key things to consider:
1. The faster a market moves in one direction, the quicker it generally retraces. Identify key 50% Fibonacci retracement levels. This means you should be very aware of how long you hold trades for. The greater the volatility, the shorter the trade tends to be.
2. Stops. As markets move faster it’s a better idea to trade smaller sizes and build positions over a number of prices. If you intend to scalp the markets pay close attention to the placement of your stops: the quicker markets move and retrace the harder it will be to pick good short-term trades you can make money from without getting stopped out.
3. Pick a market that is in the news. The more the media spotlight is on a product the more people will be trading it. This means that if the FTSE is dropping faster than the S&P there is probably more value trading further momentum in the FTSE than trying to sell the S&P expecting it to catch up.
In reality what goes up will come down. If you have long-standing directional trades it is not necessarily the time to panic and get out. This is the fearful mindset that undoes so many retail traders. If you think your trades are good then you can always take the opportunity to increase your size at better prices. How many times have you heard of investors being ‘panicked’ and getting out at the bottom, taking untold losses? I can say hand on heart I hear this every month, and have done for the last 15 years.
Volatility and panic are great opportunities to trade if you approach them in the right way. Trading is not about being right, it is about being right at the right time.
Steve Ruffley
Chief Market Strategist

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