How to adjust your prop trading strategy in volatile markets

Long-term investors might not love a volatile market, but short-term traders? They often see it as a goldmine of chances to make some moves. After all, you need prices to shift to make money! Different levels of market volatility actually suit different trading styles. Folks looking at the long game and following big trends usually prefer things to be calmer because big swings just add more risk and uncertainty, which isn't their vibe.

Though most investors shun market volatility, market swings aren't always a bad thing; sometimes they can lead to quick wins, provided you have a good risk management strategy. Now, we usually say that expecting super-fast, high returns often leads to losses, but a more volatile market just means you need a different game plan.

To handle super volatile markets, you really need to tweak your strategy and trading style, and be ready for a bit more mental gymnastics. Staying disciplined and sticking to your plan is super important. For more tips on a winning mindset in prop trading, read our previous article How to maintain a winning mentality as a prop trader.

If you're a trader who uses indicators, those that factor in volatility can be extra helpful. Bollinger Bands, for example, are pretty popular. They define price ranges using standard deviation to measure how volatile an instrument is, basically showing you the relative highs and lows. We have a series on Bollinger Bands: Bollinger Bands®- Introduction and key points, Bollinger Bands® - Patterns 101, Bollinger Bands® - Trading strategies for long and short positions.

Position traders who hold trades for weeks or more to catch bigger trends, usually prefer calmer waters but can still handle higher volatility. One possible solution is to widen your Stop Loss levels a bit more than usual.

This means you'll need to shrink your position sizes to avoid taking a huge hit. If the increased volatility sticks around on higher timeframes (like daily charts), trades might wrap up faster than usual as Take Profit targets get hit sooner thanks to stronger price moves. But, you should also be ready for the possibility of more frequent losses.

Swing traders who keep positions open for a few days, should also find excessive volatility manageable. Sometimes, they may even find volatile markets beneficial! Still, they also need to be on top of adjusting their Stop Loss and Take Profit levels. Just like position traders, faster movements might shorten trade durations, so be prepared for that.

Intraday traders and scalpers are usually the most excited about increased market volatility, as it gives them more chances to jump in. However, this perk can quickly become a problem if it leads to overtrading.

If you belong to these two groups, you need to set clear rules about the maximum number of trades or losing trades you allow yourself per day. Trading in volatile markets without Stop Loss and Take Profit orders is a huge no-no.

Keeping an eye on the economic calendar is also crucial. While news releases and the big market moves that follow might look like great opportunities for scalpers and intraday traders, they can be dangerous traps. Widened spreads and Stop Losses getting triggered can really hurt a trader's account due to potential slippage, and trying to recover those losses can lead to even more unnecessary trades and financial headaches.

While more volatility might bring more entry points, it's really important for traders to resist the urge to overtrade. That just ramps up the risk of mistakes and losses.

No matter the market situation, discipline and being selective with entry positions, always stick to your trading plan first and don't get sidetracked by a sudden flood of market opportunities. If you can do all these, you would have mastered the art of consistent trading.

So, while volatility can be a great tool for making sure you have enough trading opportunities, it's super important to not let it take over completely. Prop firms seek consistent, profitable traders within risk limits. While winning streaks tempt larger trades, great prop traders demonstrate discipline and stick to a pre-defined trading plan for success.

Prop trading allows new and experienced traders to access significant trading funds without using their own capital. With discipline and strong execution, it can be highly profitable. Success hinges on a solid trading strategy which includes clear entry and exit points, risk management, and market understanding.

This involves deep trading knowledge (market fundamentals, economic indicators, asset classes) and technical analysis for reading charts, spotting trends, and predicting market moves. Combining a robust strategy with solid knowledge and sharp technical analysis leads to a successful proprietary trading career especially when markets are volatile.