If you have ever been to the beach, you will notice that one of the most beautiful things you can find there are water waves rising and falling. Although there are many causes of water waves, one of the most common is the energy generated when the wind blows across the water's surface. When the wind pushes against water, it creates small ripples that grow into waves that rise and fall.

The behavior of water waves is very similar to a financial term called Market Volatility. Market volatility describes the rapid change in the prices of financial assets within a short time.

This implies that these prices can go up or down very quickly, thus creating both opportunities and disadvantages for investors. With market volatility, investors can ride the waves of sudden price changes<arke and make huge profits, or they can lose investments.

Just like the way water waves are caused by the wind, market volatility is caused by factors such as economic news, political events, or sudden changes in supply or demand.

Market volatility is a reality every trader and investor must face, including copy traders. It can be nerve-wracking to watch the up-and-down movement of the market, especially if you are new to the concept of trading/copy trading. In fact, there would be no profit without volatility since there would be no price change.

However, it is a reality that can be managed and even taken advantage of. In this article, you’ll learn everything you need to know to help you deal with market volatility and protect your assets as a copy trader.

Understanding Market Volatility

As earlier defined, market volatility is the rapid and significant price movements in the financial markets. These markets could be based on stocks, forex (foreign exchange), cryptocurrencies, etc. It is caused and influenced by various factors, including economic events like inflation rates or unemployment figures, political developments such as elections or policy changes, natural disasters that can disrupt economies, and overall market sentiment that reflects the collective mood and attitudes of traders and investors.

If you are new to copy trading, it is easy to underestimate the influence of market volatility and treat it as just another financial term that has no serious effect on your finances, but history has something different to say about its extreme character.

Examples range from the financial crisis in 2008, the dot-com bubble burst, to the most recent market fluctuations caused by the COVID-19 pandemic. All of the above examples are evidence of how quickly and unpredictably markets can change.

To avoid being a victim of market volatility, you must understand its dynamics and take the right steps to secure your investments.

But first, let’s provide answers to some important questions most people ask about market volatility and copy trading.

Is Volatility Good for Traders?

Volatility can be good for traders because it creates opportunities to buy low and sell high. However, it also comes with higher risks. Traders with more skills and experience have a higher chance of making a profit, but it is very easy for beginners to lose money. At the end of the day, market volatility isn’t inherently good or bad; it all boils down to your ability to handle it.

Can You Make Money From Market Volatility?

Yes, you can make money from market volatility. Smart traders know that they can profit from the price swings by buying at low prices and selling when the price rises. However, it takes a good understanding of the market and quick decisions to pull a stunt like that. It’s risky, so it’s important to know what you are doing before acting.

How To Overcome Market Volatility?

There are many ways you can overcome and deal with market volatility. You could choose to diversify to spread risk or use stop-loss orders to limit possible losses. Most experts would even advise you to maintain a long-term perspective, stick to your trading plan, and watch out for market trends and news.

All of these methods could work depending on your goals, experience, and the situation at hand. Irrespective of how things might look, remember to play according to your risk tolerance.

How Do You Keep Calm During Market Volatility?

All copy traders experience the slightest change in the market, which can cause them to get scared. However, it is much more difficult for beginners to handle their emotions when the market's ups and downs begin.

You can stay calm during volatile markets by focusing on your long-term goals instead of your short-term goals. This is a lot easier to accomplish if you have a trading plan that you trust. Focusing on the long term helps you realize that you cannot control the market movement and how it might affect you in the present.

But you can act to ensure that they lead you toward your long-term goals, irrespective of the current state of the market.

Another way you can remain calm is to stop constantly checking the market and reading any news you come across on the net. Constantly checking the news on your phone at the slightest opportunity will only keep you worried and restless. Sometimes, you do not want to be aware of everything. Instead, set specific times to review your investments and see the changes that occurred.

What Strategy Is Best in Volatility?

As a copy trader, there are several ways to handle volatility,, but one that is universally accepted is to avoid making impulsive decisions.

Market volatility has a way of spiking your emotions as a copy trader, pushing you to make decisions at the moment that you might regret later.

As a copy trader, it is important to control your emotions to prevent them from influencing you to take action.

Here are four strategies that you can use in navigating market volatility as a copy trader.

Choosing the Right Traders to Follow

As a copy trader, your success begins and is tied to the kind of traders you follow. Choosing the right traders to follow is a basic requirement for navigating volatile markets' storms.

The same way surfers use their boards to ride ocean waves is the same way you rely on the traders you follow to ride the waves of market volatility and make the right decisions. This boils down to everything from looking at the track records, risk management strategies, and trading techniques of the traders you want to follow.

You want to make sure that any trader you decide to follow has all of these in place for many reasons.

The reality is that a trader with a consistent track record over a long period is generally a safer bet than someone with a short-term streak of success. Also, understanding how a trader manages risk is also important. Traders who implement solid risk management strategies are more likely to protect their investments during volatile times.

Apart from choosing to follow the right trades, diversifying by spreading your investments across multiple traders is another way to manage market volatility. This reduces risk, as the poor performance of one trader may be offset by the good performance of another.

Risk Management Techniques

Another way you can learn to deal with market volatility is to use effective risk management strategies. A basic but effective technique that works is setting stop-loss and take-profit levels. The essence of these limits is to automatically sell your position if it reaches a certain loss or profit level, thereby protecting your investments from extreme losses and locking in gains.

Allocating only a fixed percentage of your portfolio to copy trading is another risk management strategy you can explore. In a worst-case scenario, this basically ensures that even if your copy trades perform poorly, your overall portfolio remains protected.

Irrespective of whatever risk management technique you employ, regularly reviewing and adjusting your copy trading portfolio can help you respond to changing market conditions and the performance of the traders you follow.

Staying Informed and Updated

One of the most important ways to handle market volatility is to stay informed about market news and trends. Every slight change in the market is influenced by external factors. Staying informed and understanding the economic calendar and how different events can impact the markets can help you predict and prepare for potential volatility.

You should also prioritize staying updated with the latest news from the traders you are copying. Many copy trading platforms provide updates and insights from these traders, which can give you a better understanding of their strategies and how they might react to market changes. With those insights, it becomes easier for you to act when you need to as the situation demands.

Emotional Discipline

Keeping your emotions at length and in check is perhaps the most challenging yet most important aspect of trading. Volatile markets can trigger fear and greed, pushing and influencing you to make impulsive decisions that often result in losses. It is important to avoid panic selling when the market drops or overreacting to market spikes.

A trick that can help in such cases is to keep a long-term perspective, trust your trading strategy and the traders you follow, and not allow short-term market movements to dictate the decisions you take.

You can also consider using automated tools to enforce discipline. Most copy trading platforms provide features that allow you to set automatic stop-loss and take-profit levels, ensuring that your trades adhere to predetermined risk management rules even when emotions might tempt you to act otherwise.

Conclusion

While market volatility can be tough to deal with as a copy trader, it is still a reality that you can learn to navigate and use to your advantage. The key lies in applying the strategies in this article and ensuring that you learn consistently. To help you become a more efficient copy trader and investor, you can pick up and read "The Little Book of Common Sense Investing" by John C. Bogle and "A Random Walk Down Wall Street" by Burton G. Malkiel.

These books are centered on investing and market dynamics and can help improve your understanding of what it means to be an investor in such days and times.

You can further place yourself on the path of continuous learning by following this blog and subscribing to the email newsletter to get more content like this. By putting all you have learned into practice, you can become better at handling volatile markets with more confidence and stability.