When choosing the markets that are right for you, it’s crucial to understand if you’ll deal with volatile or stable prices and plan your trading strategy accordingly. In this article, we’ll go trough the basics of these two market types and see if one is better to trade than the other.
Definitions & Differences
A market is considered volatile when prices rise and fall over a short period of time. These quick moves often break support and resistance levels on a daily basis. The Forex market or the Cryptocurrency market are seen as volatile markets for example.
A market is considered stable when prices stay within a certain range over a longer time frame. This makes it ideal for long-term investing. The Stock Market for instance is regarded as relatively stable.
Price movement is necessary for traders to make profits. In a volatile market, there are more opportunities to do so than in a stable market as the gap between a buying and selling price is bigger and happens more often. On the other hand, that also means that there are also more risks to lose more money over a short period of time. In a stable market, the trends, whether up or down, happen quite slowly giving the investor or trader more time to buy, sell or adjust his strategy.
Time & Profits
Volatile markets require more time commitment than stable markets. Since price action moves quickly from one side to another, the trader needs to perpetually analyse the market and find the best opportunity at the right time. A moment of hesitation and that golden trade is gone. It requires some strong knowledge about trading tools and indicators but also a calm mind and keeping emotions under control. These are all the skills that are necessary to become a good day trader and volatile markets are usually where you’ll find them. Stable markets are less time consuming as price fluctuations happen over a longer period. Therefore, you do not need to sit in front of the computer every day as the market moves slower. If you’ve defined a buy and sell order for a stock, you don’t need to do anything else than letting the market do its job. Often, swing traders and long-term investors will be involved in stable markets.
You can make and lose money in both stable and volatile markets. The main difference is the time frame on which those gains or losses happen. Unless you trade stocks on margin, are playing with big money or some unexpected events happen, chances are you won’t become rich tomorrow but you won’t get broke either. In volatile markets, things happen very quickly, especially if you use margin trading. Gains and losses can become significant in a matter of minutes.
And The Winner Is…
The bottom line is that there isn’t objectively a market type that is better than the other. It all depends on your goals, your strategy, the time and the money you’re willing to spend into trading. Make sure that you grasp the features of the market you want to trade and educate yourself as much as possible about the best strategies to make profits and minimize the risks no matter where you trade and what you trade.