My Top 8 Trading Tips For Volatile Markets

Is volatility rocking your trading game, or does it make you excited? More importantly, how can you put it to your advantage?

Being able to to navigate volatile markets is a crucial skill for any penny stock trader.

High volatility is associated with uncertainty and risk. And when it’s high, there’s potential for big price swings. I embrace high volatility for the stocks I trade.

Here are my top 8 tips for how you can make volatility work for you.

1. Identify the Reason for the Market Volatility

When you see an increase in market volatility, it’s a good idea to try to understand the reason.

The cool thing is that, as with individual stocks, it’s usually something you can identify.

For example: News can drive volatility.

Think big world news events. Over in the UK, the Financial Times Stock Exchange (FTSE) went through a period of high volatility when the Brexit deal was announced.

Other times, the reason might not seem so obvious …

It might be the storm following a long period of calm or steady movement in one direction. If you look at a VIX chart for the second half of 2018, you’ll see a massive spike in volatility in October — right after a long period of relative calm.

Some traders call the calm period a listless or stagnant market. Eventually, volatility becomes necessary to get things moving again.

2. Acknowledge That the Market Has Shifted

Sometimes we all need a little wake-up call. Markets change — and when they do, you have to change with them.

Otherwise you can get pummeled.

One of my first big trading lessons happened in the spring of 2000, when the easy money of the dot-com boom came to a screeching halt.

The Nasdaq tumbled along with all those cash-eating, no-revenue companies. Suddenly, the patterns I used to go from a small account to well over six figures were not available.

Volatility was through the roof at the time, as panic followed panic.

It was enough to put a little fear in me, so I sat on the sidelines for a while and watched things unfold.

I’ve always been conservative that way.

I wasn’t aware at the time how good my instinct was. I was itching to trade — and it forced me to start looking for new plays.

3. Evaluate Other Potential Opportunities

When things seem out of control, take a step back and look at the big picture. Then start looking for other opportunities.

It’s the classic ‘one door closes and another opens’ scenario. The stock market can imitate life in that respect.

Back when I was forced to look for new plays, I discovered short-selling.

Now it’s one of my favorite strategies.

In case you don’t know, short-selling means you borrow shares to sell and then buy shares at a lower price to pay back those you borrowed.

In other words, it’s a bet for the stock price going down.

4. Refocus on Your Education

When things get a little rough — and I know the market behaves erratically at times — the best thing to do is take a step back and dig into your education again.

Trading is a lifelong skill. It takes time and massive effort to master. Once you’ve been through a few up and down markets and high-volatility periods, you’ll have a better idea how to respond.

For now, understand that you should be studying all the time.

When in doubt, say during a high volatility period, study more.

Consider it your chance to witness firsthand what kinds of price swings can happen.

I’d also recommend paper trading during this time. Prepare yourself for next time — because high-volatility markets seem to come and go.

5. Look at Who Is Making Money

I think this is a very underrated and overlooked concept.

What would you do if you wanted to be really good at something? Would you go hang out with someone who was bad at it? Would you listen to the advice of someone who sucked?

Unless you want to fail — No. You wouldn’t.

You’d seek out the best.

You’d figure out what they did to get where they are.

Trading is the same. Find the traders making money.

Figure out where they hang out online, and hang out there. Pay attention to what they’re doing. Ask them questions.

Learn the mechanics of how they’re trading.

Find traders that are totally up front about both wins and losses. That’s something you should take advantage of.