The Covid-19 pandemic has impacted us all. Striking out of the blue, it has closed the doors of businesses, plunged economies into recession, and it is still gathering speed in different parts of the globe.
As a trader, you have likely found yourself in some unexpectedly deep waters. How on earth can you manage these unprecedented risks?
Let’s try to alleviate some of that stress and look at eight ways you can do just that.
Position sizing
The size of your position will determine your earnings. While it can provide some lucrative wins, at times like these, it can also cause some unwanted drops.
To minimize your potential loss, try to ensure that each of your trades risks no more than 3% of your total account. That way, even if shares that used to be steady experience a plunge, you won’t be hit too hard.
Stop losses
When the market is volatile, stop-loss becomes an increasingly valuable tool. It will stop your trade at once when it hits a certain predetermined level. However, since the pandemic is causing all sorts of fluctuations, you need to rethink the stop-loss orders you usually hold.
Since there have been some incredible single-day losses as well as gains, take into account how much shares will move in a day when giving out your new orders.
Market understanding
While it may seem counterintuitive to work on your trading skills during a pandemic, it might be worth your while to trade less and study more. If you are unsure where the market will be moving, or if you are not as yet as confident in your skillset as you would like to be, now is a great time to read up on the art of the trade and learn more. There are many different strategies you can use to improve your performance, and now might be the right time to explore them.
However, you might want to hold off on testing out a new tactic until the pandemic is over. Knowledge is one thing, risk quite another – and you’re looking to manage, not play some dice.
Reduce leverage
Leverage is a great way to access bigger profits, but it also leaves you open to more significant losses. If you make the right call, your earnings will certainly be admirable, but using leverage to borrow additional funds only leaves you more vulnerable in times like these, when you can’t really predict where the market will go.
Even if playing it safe is not your métier, reduce your use of leverage during the pandemic.
Monitor the market
A lot can happen in a very short span of time during the pandemic, so your best bet to reduce and manage your risk is to keep your eyes open and see where each day will take you.
You can set up an alert system to help you stay on top of current market movements, but you can also do the work yourself. Read the news as well, as the pandemic is not moving at the same speed all across the globe, so there may be significant opportunities available in unexpected places.
Be careful who you trust
Make sure that your sources are credible. The pandemic has caused all sorts of fake news and misinformation to come to life both in mainstream news and on social media, so don’t trust anything before you can verify the information at least through two independent sources.
There is also a lot of fear-mongering going around, and many are trying to make a fortune in a dishonest way during a global crisis. So stay sharp and use your common sense.
Close before the weekend
Tying into the point about staying on top of the news, we’d also recommend closing before the weekend to stay safe. If we’re to learn from the past several months, there have been instances where prices opened lower than they closed on Friday because of something that happened over the course of the weekend.
To be sure your risks are manageable, close on Friday, watch the news over the weekend, and come to work on Monday armed with a fresh set of facts.
Close at the end of the day
You can also choose to close at the end of trade each day, in order to avoid any potential drops that may await as the markets open the following day. While we are no longer in that most volatile part of the pandemic when large markets were first hit, and as most economies have gone through that first initial shock, things can still happen to upset your market. Closing at the end of the day can save you some overnight stress, as well as money.
Final thoughts
You may want to rethink the way you trade while the pandemic is still raging. It’s better to come back and trade another day than to lose more than you can afford at such unprecedented time
