Risk Warning: Trading Contracts for Difference (CFDs) on margin carries a high level of risk and may not be suitable for all investors. Please ensure that you fully understand the risks and take the right measures to manage your risk
As the financial market is witnessing another week of uncertainty, we can all agree that the larger the impact of external factors, mainly the geopolitical crisis, the more difficult it is to predict where prices are heading.
Currently, the crisis in Ukraine is an external factor that is so fluid from one moment to the next, so if you’re wondering which strategy to adopt? Here are a few tips:
1- Lower leverage: When volatility is much higher than normal, it is recommended to use lower leverage when trading. If market sentiment suddenly changes, it can wipe out stop-loss points in just a few seconds and ultimately go in the right direction. Reducing account risk is even more important for new traders.
2- Broadening the range: Trade a wider range allows to maintain the same risk/reward ratio while increasing stop loss and profit points. Given the current rise in volatility, these transactions may be executed sooner than usual. As Vladimir Lenin said, "There are decades where nothing happens, and there are weeks where decades happen".
3- Make the trend your friend: When the behavior is strange, it always makes sense to zoom in on a wider chart to see the big picture and follow the trend rather than going against it. What is the current trend? The safe-haven dollar is in high demand while the euro area is more exposed to war than any other region. Shorting EUR/USD is therefore a good trade. The same applies for long gold positions, the status of precious metals as a hedge against inflation is controversial, but its appeal to traders is undeniable. Another trading trend is oil, as Russia produces about 10% of the world's "black gold". Even before the war and its predecessor accumulation, the world was rapidly recovering from Covid while supply was still below standard, so the war only promoted trade, WTI is volatile, but the trend is clear.
4- Watching for a reversal: It is very important to note that current trends can be reversed if a comprehensive ceasefire is agreed, or if the war ends in other ways, such as the withdrawal of Russian troops or the collapse of the Ukrainian government.
Four tips for trading when there is a geopolitical crisis:
- During a war/crisis leverage should be reduced due to high volatility.
- It is necessary to widen trade ranges so as not to suffer from unexpected movement.
- Try to go with the trend and not against it.
- An awareness of a possible reversal is essential
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