Surviving Tough Market Conditions: Knowing When to take Risks

 

“The contrary investor is every human when he resigns momentarily from the herd and thinks for himself” – Archibald MacLeish

In order to survive the current global market conditions as an investor, it is vital to be able to think out of the box, know when to take risks, and when to play it safe. The good news is that thinking laterally, and problem-solving are skills that can be learnt and enhanced by gaining a thorough and in-depth insight into the current financial market conditions, the economies of scale both at a global level and a national level, and finally how the world’s socio-economic and geopolitical events impact on all of the financial markets around the world.

Mitigating risk in volatile and unstable markets

Before we look at ways to reduce our exposure to risk and trade successfully when investing in the current volatile and unstable markets, let’s take a brief look at the definitions of risk as well as what the exposure to risk is.

Risk and the exposure to risk

Investopedia states that “risk involves the chance an investment’s actual return will differ from the expected return. Risk includes the possibility of losing some or all of the original investment.”

Furthermore, mitigating our exposure to risk or risk management is “the process of identification, analysis and acceptance or mitigation of uncertainty in investment decisions.”

In other words, when we invest in the global financial markets we take a chance (risk) that the actual return (money earned) will be different to the expected outcome. Before we place a trade, to minimise the chance that the money we earn will be less than our initial investment, we need to study the markets as well as the price movements of our chosen underlying assets.

The deeper our statistical analysis of the current market trends as well as the past, present, and future price movements of the underlying asset as well as other stocks in the same category, the greater our chance of placing a trade with a favourable outcome; thereby, mitigating our exposure to the risk of losing our initial investment.

Ways to increase our trading success

In spite of the harsh global economic market conditions, there are some pertinent points that you should keep in mind when looking at trading on the world’s financial markets:

Choose your online trading partner carefully

The online world is awash with news of the latest scams and hacks that are perpetrated by people desperate to gain access to your personal details, especially your bank account details, etc. Therefore, it is vital that you make 100% certain that you partner with a reputable online trading partner whose mission it is to help you trade successfully under the worst market conditions possible.

Trading strategies

Different trading or investment strategies are designed to leverage different market conditions. For example, I believe that a short-term investment strategy such as day trading is the best type of trading strategy for unstable, volatile conditions. The aim of day trading is to open and close your investment position within a single day; thus, you can go to sleep at night without having to worry about what will happen to your investment overnight.

Research the assets you which to trade on

I can’t stress this point enough. The greater the market volatility is, the more you need to research both the price movements of your particular asset, but also all of the stocks in the same investment category as the asset that you are interested in. This is where a good online trading partner is a significant boon. For example, brokers such as Lionexo make it their business to help you analyse the daily market conditions by providing statistical analysis of the market you are interested in trading on, as well as in-depth analysis of the particular underlying asset that you are planning to trade on.

Final words

In conclusion, while we have reiterated several times that it is possible to trade successfully on the global capital markets, it is important to note once again, that it takes careful thought and planning to place successful trades. Furthermore, it is advisable to cultivate the ability to look at a challenge as an opportunity to find new and innovative ways to grow your wealth.