Dipo Olowookere
The war in Ukraine has great implications on the global economy and the broad financial markets. Because the countries involved in the conflict are large exporters of energy, agricultural goods, and commodities, supply chains could take a big hit. It is during these moments traders are faced with challenges, but they need to adapt fast.
If you are not already using a position size calculator and taking steps to reduce your exposure, it might be the right time to act. This is just one of the golden tips for trading during times of crisis. Let’s take a look at some more important ones.
Tip #1 Trim position sizing
Although the elevated volatility and large price action swings might look like “once-in-a-lifetime trade opportunities”, in reality, the risks involved are greater. Counterintuitively, it would be better to reduce trade size and adjust risk management parameters.
By trading smaller amounts you gain more flexibility, including the ability to place wider stop losses, without risking a larger percentage of your account balance. Also, if things go wrong, the loss will not be greater.
Tip #2 Be aware of headline trading
Markets get emotional and react impulsively to any news headline released by major outlets. Just recently, stocks jumped in pre-market following positive remarks made by Russian President Vladimir Putin, even though the war is far from over.
Similar situations occurred when negative news was published, driving the risk sentiment lower. It wouldn’t be appropriate right now to jump the gun and place trades impulsively, especially if prices have already moved up or down. Wait and see what develops before making a decision.
Tip #3 The price can overshoot
When volatility surges anything can happen and a trend could extend beyond your expectations. Support and resistance levels are less significant because liquidity is thin and the price breaks above/below them, only to resume in the countertrend direction afterwards.
Gold price, for example, rose close to its 2020 highs and when everyone believed a breakout would be imminent, the precious metal started to weaken, leaving all who bought at the top underwater. Once the initial euphoria settles, the market starts to price in the substance and more often than not, what looks like very positive news might actually be nothing.
Tip #4 Adjust trades frequency
As tempting as it can be, increasing trade frequency will very likely mean a higher probability to make mistakes. Prices are choppy so more trades might put you in an uncomfortable position often. Instead of that, do the opposite and reduce the number of trades per day/week.
Be selective and choose only the setups that you believe could end up positive. Big financial institutions have access to advanced algorithms, the best execution, and information, which enables them to place trades before retail traders even find out what happened.
Wartime is when you need to have a conservative approach and not think about exaggerated returns. There will be a time when markets price in the war, starting to focus on other predictable variables. Until then, stay safe.
