So far 2020 had been a historic year, with the fastest drop in the stock markets ever recorded. As CFD traders we should adjust the way we interact with the market and although the possibilities are endless, we would like to talk about three of the best ways to profit from the huge volatility with CFDs.
#1 Buying safe-haven assets
When economic prospects are depressed, gold and bonds are two asset classes that tend to perform better. In the case of gold, short-term traders should be cautious, though, since it could drop due to massive market liquidations. However, trading gold CFDs instead of stocks will be more efficient, given that liquidity in gold-related contracts is greater. Bonds are not so popular among retail traders, but if your broker offers bonds contracts with low spreads, you could find opportunities, as well.
#2 Using breakout strategies
Now is the time when all the analysts and macroeconomics fail to predict with high accuracy how the market will move forward. With so uncertain fundamentals, technicals are the ones we should stick to. CFD traders should carefully monitor support/resistance areas and how price reacts to them. Breakout strategies work really well in this kind of environment and traders should lever them to the max. It’s important to remain detached of what you think and instead focus on market behavior. Keep a high level of flexibility in order to adapt quickly when technical conditions change.
#3 Adjusting risk parameters
In less than 4 weeks, the US stock market tanked 30%, showing how great volatility we traders have to deal with. Considering that prices move so impulsively, this is not the time to double up on your risk. Instead, reduce your exposure by adjusting several risk parameters. Your trade size should be smaller, as well as your risk per trade. At the same time, you should place larger stop losses and target higher take profits, in order to have an optimal ratio between the potential risk and reward.
At the same time, this is one of the periods when monitoring the risk is the most important aspect. Don’t think you’ll be making a fortune in a few weeks. Trading will still be a long-term process and markets will continue to exist, no matter what the outcome of the coronavirus outbreak will be. The world had gone through a lot bigger hardships and this one will go away, same as the others.