Corner of risk management: Surviving Data releases with high volatility
Most traders execute on the notion that when big macro figures are involved (such as a CPI, NFP or the decision of the Fed), they can only consider how much they can make rather than how much they can lose, and that is where accounts explode. Large volatility candles increase the spreads and cause slippage as well as target all perceptible stops close to the most visible swings in either direction.
The way to survive these events is by being small than normal, expanding your invalidation a little bit beyond the blatant liquidity pools, and recognising that and no trade is at times the perfect trade in a disorganised market. Prior to the strength, set your worst loss of the day, set alerts rather than market order, and leave the initial response alone so that you can get in or out of the post-news structure and not the news spike itself.
You are also able to diversify the risk as you can make many small bets rather than one big bet and a wick will not get you out of the game. In the event that you are currently in a swing trade and you want to take partial profit or tighten stops before the event, the idea is that you should ensure that you are not emotional when volatility leaves you in a position to become a victim. In the long-term, traders who hedge against the “event days” survive to reap the dust and cleaner more likely moves that occur in the aftermath of the dust settling.
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