It really cannot be denied that the stock exchanges are currently extremely political. Now that the referendum is over and the Greek people have clearly voted "no" against the savings conditions, the DAX future lost 3.5% at the opening.
It should be noted that the future was close to close of trading was still bought vigorously on Friday; some dealers had probably voted "yes". But how do you deal with such a situation?
As you know, trading depends to a large extent on psychology. Falling into a gambling addiction - even if you don't call it that in the circles - is relatively easy: especially if the trader expects prices to rise and politics keeps thwarting him.
In such cases it is advisable to act cautiously, as a series of losses due to political risks and the resulting high volatility promotes exactly this feeling, i. that is, wanting to recover the losses; as it is with gaming.
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What is the best way to deal in the environment of political risks?
So that traders do not fall into the gambler's hands Risk management is the be-all and end-all. If we look at the chart of the DAX, we can see a clear downward trend despite the uncertainties. However, it should be pointed out that it only looks very clear afterwards.
What is also clear: the DAX has tried several times to break upwards. However, political decisions almost always led to a sell-off. In such times, it makes sense to reduce the risk - this can be done in several ways. You can...
- stay completely out of the market (increase cash).
- Do hedging.
- Reduce the trading horizon.
It would be advisable to keep yourself completely out of the market when trading on a medium or long-term basis. Especially if traders hold a portfolio of several positions, they could minimize the risk by closing the medium-term positions, otherwise they will lose too much of their profit.
In the case of binary options, some of the brokers also offer early closing; or traders do not enter any new positions at all. As for longer-term positions, you should make it dependent on the entry you have chosen. If the option was bought at a higher price and one speculates on rising prices, it makes less sense to hold the position if the price approaches the loss zone extremely.
Hedging is also suitable for long-term positions. This is in cases where the option was bought at low prices and the political risk is not considered to be too sustainable. Hedging can be used with other products such as CFDs. However, hedging is less optimal with binary options, since the profit does not depend on the gain of the price and is already certain if the purchase price has been exceeded.
Probably the best way to make profits in such times is his change the actual medium or long-term strategy for the period in question and only act intraday, i.e. to extremely reduce the time horizon. In this way, the trader does not have to bear the overnight risk, which is currently very often present. It should be noted that the retailer does not take any short-term trend indiscriminately, but waits for a good setup. And secondly, that risk management continues to be carried out here as in medium-term trading.
If you look at the short-term chart of the DAX futures, it performs - similar to the development in the last week - again strongly increasing dynamic. Short-term traders who watch the market every day could have traded a few hundred points just because the situation is similar. Positioning yourself in the medium to long term, however, would only be advisable above the lower range.
In times when the political calculation repeatedly thwarted the dealers it makes sense to reduce the risk. Above all, however, because traders slide into a spiral of emotions during long series of losses and trading becomes gamble.
Depending on the product traded and the holding period, the risk can be minimized using several of the methods discussed above. However, it would be particularly advisable to switch from medium-term trading to intraday trading. Only reliable setups should be traded.
With the broker 24Option, intraday trading can be implemented well, whereby traders should always be aware of the risk associated with trading. However, if someone does event trading and speculates on certain political decisions, binary options are particularly suitable: If a crash occurs, the dealer only loses his stake and not - as with other products - also his capital if he makes a margin
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