As the world celebrates the end of the pandemic and bars and restaurants are filled to the brim with eager diners, a new set of problems seems to arise. During the pandemic, central banks around the world dished out huge incentives in a bid to stave off economic collapse.
But we are in a totally different landscape now. There is a new and greater problem to solve: inflation. Inflation, if left unchecked, can lead to not only economic collapse but social upheaval as well. The latter scenario is what governments fear most.
The rapid rise in interest rates seems to be a one-size-fits-all approach. It is a blunt tool wielded by central banks based mainly on lagging economic data. Nevertheless, the aim is to bring down inflation to manageable levels. The aftermath of this policy is a huge liquidity squeeze. Expensive borrowing costs affect business expansion plans. This lowers consumer confidence.
How should a trader trade the current liquidity squeeze that is surfacing among institutional traders and hedge funds? A lack of liquidity will heighten volatility since a huge order block will more greatly affect a stock’s price. Traders should explore scalping strategies as a means to earn alpha consistently until perhaps the Fed has confirmed a suspension of its rate hike exercise and inflation and interest rates start to decrease dramatically.
A scalping strategy is essentially a strategy that aims to profit on many trades, with each trade typically earning no more than 1% in profit. In order to run a scalping strategy, a 5-minute or lesser trading frequency should be used. There needs to be a tight stoploss as well in order to prevent “stuck” positions.
Using a stock trading bot like StockHero is best suited for executing a scalping strategy.
Disclaimer:
Any information provided in this article is not intended to be a substitute for professional advice from a financial advisor, accountant, or attorney. You should always seek the advice of a professional before making any financial decisions. You should evaluate your investment objectives, risk tolerance, and financial situation before making any investment decisions. Please be aware that investing involves risk and you should always do your own research before making any investment decisions.