The common trait of successful professional traders is that they know how to exploit the built-in characteristics that are fundamental to the markets they are trading. One of these characteristics is the role of volatility as it plays a crucial role in identifying the most attractive stocks and commodities for trading.
Recognizing the importance of volatility, a trader always knows when and why to ignore non-moving markets and why and when to trade in markets that are moving. The point is that trading in sideways markets will chew up the trading capital, so it needs to be avoided by traders.
Traders as they make short-term trades, cannot afford to wait when a market will move. Because their profits tend to be small, they must trade in those markets that give them opportunities to maximize their profits on a daily basis. Thus, the trader's likelihood of locking in healthy profits is when they are trading in active markets.
No matter how successfully a trader predicts the direction of a move a lack of meaningful day-to-day movement virtually guarantees that a short-term trader will be unable to make substantial profits. A trader must therefore be in a position to identify the markets where there is an increased possibility for potential movement as these are, they give the most profit-making potential.
To do this, there are many ways, but perhaps the most valuable is the measure of historical volatility. A trader can use volatility index and volatility indicators such as ADX indicator and may include different periods of a short time until a long time for one purpose: to find where is the trading action.
In fact, volatility is a filter for a trader to discern where to concentrate. The point is that there are hundreds and even thousands of financial instruments, so a trader should select a group of them to trade.
A trader should create a volatility list for the financial instruments such as CFDs that may adjust on a weekly basis. This list will ensure consistently knowing which CFDs are likely to provide the best opportunities.
By using the volatility to filter out the quiet markets on CFDs trader is able to focus on where the action is on a daily basis. It is true that high volatility increasing risk but if the setups of trades are correct then profitability from these setups will greatly increase because of the higher volatility.
After the US election in any of the election results that will occur, volatility in all markets and products is likely to increase. Furthermore, volatility will remain the prevalent issue for a long time as the time of return to normalcy in conditions such as before the pandemic, is estimated to reach the year 2024. Until then, the changes and therefore the instability that will accompany them will feed the volatility of the markets and products, making even more urgent the need for volatility assessment.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. The Article/Information available on this website is for informational purposes only, you should not construe any such information or other material as investment advice or any other research recommendation. Nothing contained on this Article/ Information in this website constitutes a solicitation, recommendation, endorsement, or offer by LegacyFX and A.N. ALLNEW INVESTMENTS LIMITED in Cyprus or any affiliate Company, XE PRIME VENTURES LTD in Cayman Islands, AN All New Investments BY LLC in Belarus and AN All New Investments (VA) Ltd in Vanuatu to buy or sell any securities or other financial instruments in this or in in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. LegacyFX and A.N. ALLNEW INVESTMENTS LIMITED in Cyprus or any affiliate Company, XE PRIME VENTURES LTD in Cayman Islands, AN All New Investments BY LLC in Belarus and AN All New Investments (VA) Ltd in Vanuatu are not liable for any possible claim for damages arising from any decision you make based on information or other Content made available to you through the website, but investors themselves assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other Article/ Information on the website before making any decisions based on such information or other Article.