19.03.2020

There are times when markets are really wild and crazy. Some will tell you these are the times to stand aside. Yet there is a way to trade these markets profitably – you just have to change your thinking and understand what is going on.
 
Normal, Crisis, or “Normal Crisis”?
Human beings have two patterns of behavior. The first pattern is the normal set of rules for day to day life. The second mode is crisis mode, when normal rules completely break down and we have to start to think in a different way if we want to survive. Crises are rare, so we often forget about them and start to think they are rarer than they really are.
It is very difficult for most people to make the mental change between “normal” and “crisis” until they see the danger coming right at them. This was enough for our ancestors, who had to worry about being killed by a charging wild animal during hunting, or by a warrior from a rival tribe. For modern humans, though, it is not enough – we face dangers that cannot be “seen” up close until it is too late, even though we have the intellectual tools to understand them and the technology to beat them. The coronavirus pandemic of 2020 is an excellent example of this – the pandemic might have been stopped in China, but people and governments acted too little too late, even though they knew what could happen if they didn’t act. This is probably because such a pandemic had not been seen within living memory in the western world, and so people just couldn’t believe that it would really happen, even though there are institutes and scientists working every day to warn people that it was only a matter of time before it happened.
As financial markets are driven by human buyers and sellers, financial markets also operate in two modes – “normal” markets and “crisis” markets. To be successful in the market, a trader must be able to know when markets are driven by a crisis and whether there’s reason to panic or it’s just a small crisis. Then, the successful trader needs to apply different trading rules to each different type of market. It is important to differentiate between a relatively small crisis and a true panic, which I will call a “world crisis”. Good examples of true world crises within the past century are the Financial Crisis of 2007-2008, the Cuban Missile Crisis of 1962, the Second World War from 1939 to 1945, and the Coronavirus Pandemic of 2020.

How Do You Know When it’s a World Crisis?
There are two simple rules to use that will tell you whether you are in a real “world crisis” or just a more normal smaller crisis. The first rule is, are markets moving consistently with abnormally high volatility? You can measure this by applying the average true range indicator over the long term and comparing it to the recent daily ranges of stock, Forex, and commodity markets. If the current ranges persist for several days at levels far above their long-term averages, and stock markets are mostly going down, then it is obvious that a major crisis is going on.
The second rule is not mathematical, it is emotional – is everyone you know who follows the news saying in fear “Oh, I can’t believe this is actually happening, it can’t be real”? When you have aware people talking like this and crashing stock markets on very high volatility, you have a true world crisis.
How to Trade a World Crisis
Trading Forex, stocks, or commodities during a world crisis is very dangerous, but also potentially extremely profitable. Here are ten great rules a trader in a world crisis should follow to not only be profitable, but also to avoid completely blowing up their trading account:

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What to Trade During a World Crisis?
The best assets to trade during a world crisis are those which usually make strong directional moves, while maintaining at least enough liquidity to be tradable without serious problems. These are:

A Trading Strategy for a World Crisis
Now that you know what to trade in a world crisis, and in what direction, how should you trade it? The best entry and exit method in markets with very high volatility, as you will see during a world crisis, is to use “hip” and “lop” Japanese candlestick patterns. This is explained in detail here, but it is important to know that you should wait for valid entry signals on both the hourly chart and then followed by the same on a shorter time frame chart such as the 15 minute or 5 minute before entering. You can then exit later when you get an opposite signal on a similar time frame.
Finally, don’t forget to keep calm. All crises end eventually, but every crisis gives an opportunity to profit in the financial markets.

Original from: www.dailyforex.com