Much of day trading has to do with moment by moment fluctuations in market sentiment. Then something happens in the world that changes everything. Russia invades Ukraine. Hamas attacks Israel and Israel invades Gaza. Drought in the North American Great Plains reduces wheat yields and wheat futures rise. The impact of global events on day trading can be abrupt or it can be gradual. In fact, sometimes markets appear to be ignoring what goes on in the world and then, suddenly, they pay attention and prices abruptly rise or fall.
Analyze the Current Global Economic Climate
A successful day trader needs two sets of eyes. One set follows intraday prices of commodity futures, currencies, or stocks. The other set of eyes pays attention to the news of the day. By paying attention to the current global economic climate a trader can anticipate price fluctuations before they hit the market. Part of doing this is being able to sort out when the markets cares and when it doesn’t and why. For example, while war between Hamas and Israel is a terrible thing, it does not affect commodity prices unless it spreads and then oil futures could rise. However, Ukraine is a major exporter of wheat, corn and sunflower oil and events there have a direct and immediate effect on those prices.
Evaluate the Impact of International Events on the Stock Market
An old saying about the stock market is that that the market cares only when it cares. A prime example was when the Dow Jones Industrial Average and the S&P 500 were at all time highs at the beginning of 2020. Meanwhile, a viral plague was sweeping through China, cities with millions of people were being quarantined, and people were dropping dead in the street. It took a while for it to dawn on the stock market that two things were going to happen. The virus was going to (or already had) spread to the rest of the world. And the virus was going cause businesses to shut down and disrupt supply chains coming out of China and across the world. When the gravity of this situation dawned on the market, it fell like a rock and kept falling. Day traders who understood what was happening traded the falling market successfully. Those who didn’t repeatedly “bought the dip” and were wiped out.
Understand the Risks and Benefits of Day Trading in a Volatile Market
Day traders make money when stocks, currencies, or commodity futures fluctuate in value. Trading with discipline while entering, managing, and exiting trades results in day trading profits. Volatile markets can be the most profitable or the costliest for a day trader. Having a clear idea of why the market is doing what is it doing is important. More important is always protecting yourself by setting stop loss and take profit targets with every trade, following your trading strategy and not letting either fear of greed take over and turn opportunity into disaster.
Develop Strategies to Mitigate Risk and Maximize Profits
When major world events drive market prices the results may be abrupt and short term. Or they may be continuing. Sometimes the news scares investors and prices fall. Then, when the market has a chance to digest the news, prices go back up. Other times prices fall and keep falling or rise and keep rising. In both types of situations it is important to do two things. One is to try to make sense of how events are driving the market. The other is to always hedge your day trading risk by setting price targets for getting out of trades when they go bad or taking profits before the market fluctuates and your profit evaporates.
Learn to Recognize Opportunities in Unexpected Events or Crises
This is typically a skill that evolves over time. Day traders with experience trading commodity futures, stocks, or foreign currencies are generally better at recognizing the risks and opportunities of crises and dramatic events in the world. Until a day trader understands the significance of global events it is best to keep trades small and always set stop loss and profit targets. Experienced traders who pay attention to domestic and world events more often recognize the significance of events before novice traders.
Consider Alternative Investment Vehicles During Times of Uncertainty
When global events are driving prices and just what is happening is a mystery, there is absolutely nothing wrong with sitting on the sidelines until you have figured out what is going on and why. There are times when cash is king. You may not profit from a volatile market but you will learn by watching and have sufficient trading capital when you are ready to enter the fray. At all times, trading with discipline in entering, managing, and exiting trades is key and that is a skill one acquires from DayTradeSafe.