By – Siddharth B Vasan (livelong community member)
You might have heard from other trades, especially if you are a beginner at trading, that we have to avoid trading when the market is VOLATILE. What does this term mean? Let me walk you through this concept of ‘Volatility’.
Let us first understand the basic meaning of what Volatility means. Volatility can be put in simple words as the sharp rise or fall in the value of some object. So I guess you can relate this with the word ‘Volatile market’.volatile market is when the price of shares either rise or fall sharply within a short span of time.
The main differences between normal market and volatile market are that;
Normal market will not have sharp movements in a short span of time, but volatile market will have. During a normal market day, the price of the shares move in one particular direction, that is, either upwards or downwards, whereas during a volatile market, the price of shares keep changing its trend, that is, it keeps increasing suddenly, and within no time it starts to fall.
Why to avoid trading during Volatile market if you are a beginner?
When you are a beginner, you would have learned the concept of entering into a trade with a right stop loss. But during a volatile market, since the movements are sharp, there are the highest chances of your stop-loss getting hit. This happens because you enter the stop loss according to your Risk – Reward ratio during normal market day. During volatile market day, with one sharp upside/downside move, your stop loss will get hit. So, you will have to increase your risk by increasing your stop loss further. Similarly, the target has to be set. This would not be a big deal if you become an experienced trader. All it takes is time. Give it time and learn to trade and you can master it.