Top Trading Strategies During Times of Economic Turmoil
The recent Brexit vote in the UK’s referendum regarding its membership of the EU has thrown up a certain level of economic uncertainty. The Pound Sterling dropped in value massively, reaching its lowest point for 30 years, and a lot of investors who hadn’t prepared for such an event lost out. Times of economic turmoil can have a large effect on traders, who need to implement a good strategy to counter such uncertainty. Here are some of the best plans and tips to ensure you don’t lose out.
Adjust Risk-Reward Ratios
Keeping up to date with the latest news and analysis from Oanda is an essential piece of action to make informed and accurate decisions. One of the main reasons a lot of traders fail even outside of economic uncertainty is that they lose more when they are wrong than win when right. During times of financial turmoil, it’s even more likely traders will lose. Therefore, adjusting your risk-reward ratios is advisable to prevent risking (and losing) too much on trades, while still being able to win big when trades go in a favourable direction.
Reduce Trading Frequency
If trading is your full-time profession or main source of income, then stopping immediately may be out of the question even though it is the safest method. As a trader you may feel like you should always be active, but this isn’t true. When you feel incredibly uncertain, it can be a better option to simply not trade until the economic turmoil has passed. While you won’t be making gains, at least you won’t be losing out either.
Portfolio Hedging
Hedging your bets is a popular trading and investment method anyway, but it is even more important in times of uncertainty. When you own a decent number of shares, you buy a put to hedge against a possible downturn in the value of such shares. While this does mean you won’t make any gains if the company does increase, at least if the stock price does fall (as is common during economic turmoil) they will be offset by the gains from the put option.
Covered Call
Referred to as a buy-write as well, here the investor holds a long position in an underlying asset and sells a call against it. The maximum profit is limited and a decent amount of risk does remain with the maximum loss. However, it is a popular strategy to help earn safe and steady returns from futures and options trading. Decide which of these trading strategies fit in with your trading choices and start to implement them during times of economic uncertainty to avoid large losses.
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