Whilst volatility is necessary in trading there are issues with extreme volatility that traders need to consider. The clickable chart below shows one example of extreme volatility with Copper (CUUUSD).
The size of a reasonable stop-loss which is related strongly to account size, is a limiting factor. If your account is say £2000 how much of a hit can you take in one trade like this? Not much. You’d be depending on luck to jump in on this. If your account size is £200,000 then a stop-loss of 1500 pts is a mere itch (for a £1/pt spreadbet). Luck is not a part of this business.
The most important decision a trader can make is ‘not to trade’. The next most important and related decision is how much is an affordable loss.
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