Five tips for navigating the slippery slopes of uncertainty when trading

Traders and markets seek certainty. When we know what the future holds it’s much easier to buy riskier assets, which in theory render higher results.  In uncertain times, riskier assets are less desirable, and safe haven instruments gain value.

At the moment, we can say that we live in uncertain times. The Russian-Ukraine crisis, a possible recession, and rising inflation, all contribute to higher risks.  Unfortunately, we don’t have any influence over external factors but we can control how we react to them. Here are a few ways of navigating uncertain times.

Do not trade instruments you don’t know
That seems pretty obvious but you’d be surprised at how many traders trade instruments that they’ve never even heard of. There’s a viral video of a CNBC interviewer asking his guest Mike Minervini about a company Minervini had bought and was in the middle of asserting had “very powerful earnings”. The question was: “What do they do?” Frazzled by the question, Mike faked audio connection issues and ended the interview. Most likely, he had no idea what the company did despite claiming that he had it in his portfolio.

Bottom line: Don’t trade anything unless you know what it is you’re trading.

Do your research
Read, learn, check, and verify. You want to know how the company you’re investing in is doing and also what’s happening on the macro calendar every single day before opening any trades. Macro events can have a huge impact on certain instruments. For example, the interest rate decision has a massive effect on currencies. So if you have a tier-1 event going on, consider not trading it around the publication of the data. You have no idea what the number will be so by being on the market during publication, you expose yourself to huge uncertainty.

Do not leave it to the fate
Let’s assume you have a long position on the EUR-USD. You are in profit and about to find out the inflation data from Eurozone. Inflation is hot right now, so you assume it will impact the Euro. If you don’t protect your trade in any way, you’re exposing yourself to uncertainty. In order to limit that, you need to protect your trade, but how? One way is by closing part of it and capturing some profits. You can also move your stop loss order to break even point and if the price reverses, your floating profit will not change to loss, in case the data turns against your position. You can also close your trade entirely before publication but in this way, you’re closing a door on yourself – the door of data in line with your position, which would potentially multiply your current profits.

Do not trade macro data
That brings us to the fourth tip – avoid trading macro data. It may sound like this tip was already mentioned, but in this case, I’m referring to trading the data itself. Imagine that there’s a GDP publication and you want to use the volatility that this data creates. You see that the print is better, which in theory should be a bullish factor for the particular currency, so you buy it immediately but this is not a way to increase certainty, quite the opposite. Movements during data publication can be rapid but also against logic or common sense, especially recently. Sometimes the market moves in the opposite direction to what the books are saying, and that’s perfectly normal. By avoiding those chaotic moments, you sail your boat through smaller waves.

Trade trusted setups
Technical analysis gives you many hints on how to increase the probability of your setups. One of those is going with a trend. Common knowledge is that you never go against the trend because that’s how you lose money. There are certain formations or patterns which usually result in one outcome, for example, a head and shoulders pattern promotes the birth of a new downtrend. With these tools in your arsenal, you can significantly increase the certainty in your trading. So make sure you learn at least the basics of the price action and technical analysis.

Tomasz Wisniewski is the director and CEO of Axiory Intelligence