The current health crisis is severely impacting financial markets. The first quarter of 2020 was the time of sharp market swings, global uncertainty, and the shutdown of normal day-to-day activities, resulting in work-from-home demands and even the entire nations' quarantining.
In this context of panic, traders, investors, and business leaders wonder when and if the markets will return to normal. Not only is consumer behavior changed, but global supply chains and foreign currencies are also impacted.
No one can know when the health crisis will exactly subside. But what we can say is that the markets will continue to fluctuate at least the next several months, if not the whole year 2021. While the uncertainty surrounding the world of equity investments calls for caution, some investors see the current period as an opportunity. But, is this also an opportune moment to invest in Forex, given the current health crisis? The answers are here.
Why should we expect more market volatility?
COVID-19 is undoubtedly the cause of the heightened uncertainty that has destabilized global markets. Keep in mind that cases continue to multiply worldwide, and many sectors are deeply impacted. Still, in some ways, greater volatility may be the new normal. Some argue that even if COVID-19 had not spread, it is likely that volatility would have increased due to uncertainty over the next US presidential election and the number of years since the last recession. Although the United States has entered 2020 into the longest bull market of all time, it cannot go on forever.
Global events and geopolitical issues are also linked to market fluctuations. Since 2000, events like Brexit in 2016, the US-China trade war in 2019 have caused uncertainty in the market. Today's economies are more internationally connected than they were in the past, with global supply chains, worldwide travel, and other factors increasing the likelihood that incidents in one country will affect another.
Also, the advent of social media has brought a new factor contributing to volatility. Speculations, announcements, and concerns can spread instantly, triggering considerable swings in the market. Twitter tweets from CEOs and government officials have won and lost listed companies billions of dollars after just one online post.
Forex trade: a wise investment choice in 2021
When it comes to Forex trading, volatility shouldn't be something traders should be concerned about. Since the start of the Coronavirus pandemic, millions of people have lost their investments in stocks. That is the reason why traders prefer to invest in the currency market in 2021. In fact, in recent months, trade volumes have increased sharply.
The unparalleled growth of Forex trading and trading, in general, is a relatively rare phenomenon that should be taken advantage of. The increase in currency exchanges' daily volume has exceeded 40% since the start of the pandemic. A peak that we didn't see in the past ten years.
The currency market has a bright future ahead of it, given the current situation. Indeed, the pandemic's evolution suggests that this unprecedented growth will continue for at least several months. Indeed, the volatility of the market will continue with social distancing and possible re-adjustments. Remote work will also increase the interest of traders in the currency market.
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Benefit from the volatility - use technical indicators
Like many technical indicators, ATR, or true average range, a tech analysis volatility indicator, measures something that has happened in the past to help traders make reasonable anticipation of the next moves in the market. Such a probabilistic approach is usually at the heart of profitable trading.
A good trader doesn't try to make specific predictions. Instead, they try to measure the overall probabilities of success for its strategies in the long term.
Naturally, you are probably wondering if there is a way to warn you about the likelihood of increased volatility. Yes, there is. One tool used by traders is the economic calendar; it partly helps anticipate currency volatility. Looking at how volatility increases when specific numbers or announcements are released, traders soon feel like they know what kind of numbers tend to drive the market.
For example, the United States Bureau of Labor Statistics usually publishes employment data on the first Friday of each month. The data is extremely timely and historically well correlated with economic growth. As a result, it often caused sharp moves for various markets like Forex. That's what makes the most profitable currency pairs often the most volatile.
There are different ways you can use volatility to make your trading decisions. For example, you can use your measure of volatility to try to normalize the level of risk you take with each trade.
It involves adjusting your position size based on the volatility measured in the market.
In other words: the more volatile the pair, the smaller your position size, the less volatile the pair, the larger your position size. This strategy allows you to reduce the impact of volatility on your trading.
Tips for Forex trading in 2021
For a profitable and smooth trading experience on the Forex, choosing a regulated Forex broker should be the top priority. Besides the currency pairs the traders choose and strategies they implement, the choice of a broker is the factor that could make a difference between a success and a failure.
Regarding the assets, if the worldwide health situation aggravates, traders and investors should focus on gold, the Japanese yen, and the Swiss franc. According to many experts, the Japanese yen will be the best trading asset for those who want to avoid risks.
The best advice for those who made a profit during 2020 despite the global pandemic is to continue doing the same thing they did over the last year.
Anyone who managed to profit under challenging conditions will beat the unpredictable market again.
The technical analysis is not enough due to the pandemics-related situation. Those who missed reaping gains will also need to rely on more precise fundamental analysis. News helps traders to anticipate some market trends and activities.
It seems that 2021 is likely to be a period of risks, huge spikes, and other unpredictable things. All combined makes the Forex the best way to make some money.