How Short Term Traders Can Survive Unprecedented Volatility

There is huge market volatility right now. Some traders are struggling and others are thriving. If you want to understand, as a short term trader, how to survive this crazy volatility don’t miss this video.

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there is huge market volatility right
now some traders are struggling others
are doing quite well if you want to
understand as a short-term trader how to
survive this crazy volatility stick
around
[Music]
hi I’m Steve Spencer I’m a partner at
SMB capital or proprietary trading firm
in New York City where we trade stocks
futures and options so it’s very rare to
see the type of volatility we work are
innately experiencing the US stock
market has experienced a multi-decade
decline in intraday volatility and
because of this many traders are almost
shocked when they see the market move
the way it is currently moving and for
many traders this presents obstacles in
controlling their risk and being
profitable and I kind of want to walk
you through a few things that you can do
to control your risk make sure you’re
profitable and take advantage of really
what is an unprecedented level of
volatility something that we see once
every two or three years these days not
something we really see on a regular
basis anymore so the number one thing
that you can do to control your risk and
make sure you’re taking advantage of
this opportunity is giving the proper
amount of time for preparation before
the market is even open I was up at 5:30
this morning I was at the office by 7:30
I knew before the market opened exactly
what were the things that I wanted to
trade and in what order I I was
prioritizing them and on top of that I
knew which things I was prioritizing to
creating today and which things I was
prioritizing with putting on longer-term
swing type positions so let’s take a
quick look at kind of my game plan notes
that I put together before the open I
actually share these with the traders on
their desk and people who we come to our
morning meeting March sixth game plan
notes here are the things we’re looking
at so we can get spies spwhy was looking
at the cues the triple Q’s how to create
basically take advantage of market tech
stocks the tracks the nasdaq-100 the VXX
which is way to track the VIX futures
measure of volatility going forward over
the night
thirty days and then finally TLT made
the list and it very rarely ever makes
the list but something unprecedented
happened in the ten-year bond the thing
was yesterday time’s going by so quickly
but the ten-year bond traded below maybe
was two days ago below one percent yield
and heading down towards half a percent
and TLT was exploding to the upside and
so I knew that I wanted to make a multi
day trade in terms of yields moving
higher and the TLT coming back down for
those of you are familiar when bonds
when bond yields go down behind prices
go up there’s an inverse relationship
there so TLT has been moving higher it’s
an ETF that tracks
several medium-term bonds I guess and so
those were the things on my list and so
I had the prices as you’re looking at
the game plan sheet you can see I have
multiple support areas multiple
resistance areas on the TLT and we
really just had since its hitting on new
high as we just had kind of the pre
market prices and the spies what was
good about that was the spies that
actually just bounced from last Friday
from 286 to a couple of days ago to
above 312 so we had already had a really
large move up in the spies over the last
week and we were coming back down to
support areas we hadn’t seen since the
beginning of this week we had some
resistance areas kind of based on the
prior balance so I had some pretty good
levels on the spies accuse I had a good
support but I was more thinking about
the resistance areas on the queues
because we we just that take two of the
top stocks Microsoft and Apple which
comprised you know Microsoft Apple
Google I guess those are the top three
right on Amazon top four and then after
that Facebook they’re the ones that
really move the queues it’s very
concentrated index in the top three or
four teams have these trillion-dollar
market caps and one thing that you’d
notice in the queues that because
Microsoft and Apple are nowhere near the
lows where they were last Friday even
though the market is coming quite a bit
then it was gonna gotta be tough for the
queues to really break down so what I
put on there was inflection and we’ll
take a look I didn’t actually trade the
queues did I
but I did have an inflection which means
if if the queue is open above the
inflection get long look for a move up
to r1 or r2 if it opens below inflection
you can look for a move into support
although I wasn’t as gung-ho about that
trade but the basic but I reason we have
an inflection column there is it’s just
my notation of saying if this is above
that point on that price point on the
open look for a move up to r1 if it’s
below that point on the open look to see
if it comes in to ask 1 or s2 and then
finally TLT will get 2 as well so I’m
gonna go over kind of one by one for you
the trades that I was looking at and
making and we’ll go from there so VIX
was that even though vixx was number
three in my list
it really was on top kind of the number
one thing I wanted to focus on because
the VIX futures hit 50 in the pre-market
and so they were they’d gotten up I
think to the high 30s or maybe 40 last
week but then they were spiking all the
way up to 50 this morning and the VIX
futures they’re mean reverting which
basically means as the market sells off
VIX spikes up to higher prices and that
really is what that’s measuring is what
the market or what market participants
believe the SPX which is this
represented as the spies and the stock
market the spy ETF what’s going to
happen over the next 30 days and so as
that that VIX futures moves higher it’s
basically saying we think the ranges are
gonna be wider and wider and so as the
VIX futures got to 50 this morning
that’s really pricing in that’s pricing
in a really wide range over the next 30
days I don’t know the exact prices but
it might be something like spies to you
know 50 points by range to 70 by 320 or
something like that I mean that’s that’s
that’s a pretty wide range I’m gonna
look for that over the next few days for
that to come in so two things I’m
looking at number one I’m looking for it
to come in on the open and move down and
be short the VXX
but number two I’m looking over the next
week over next the few days things kind
of settling in and coming down maybe it
at a 40 on the VIX futures or maybe even
35 and when that happens I want to have
put options and with the way we played
that was with you vixy putts was it’s
triple or double or triple leveraged
compared to just the VIX accent
more bang for your buck so let’s take a
look at some charts so we have this game
plan here’s the Vics pre market you can
see it had topped out at 32 so I have
that as potential resistance and I had
on the scale in sheet I think I had 31
as s1 and 30 as s2 and my thought
process is basically going in I don’t
know if the market is going to sell off
market is going to bounce and VIX is
going to come down if it’s going to take
out all my support areas but if it does
meaning if it fails at 32 right on the
open and then takes out s 1 which is at
31 and takes out s 2 with strength then
I’ll start to think about it okay maybe
the top is in for V X X and I’m going to
look at this trending for the rest of
the day you know down to 28 27 etcetera
but at a minimum from getting short in
the pre-market
which I was doing and right on the open
at 32 I’m going to look for a quick move
down to s1 which it did actually right
on the open I went to ass one and it
comes in there I’m gonna cover half of
my position for short term at least and
then I’m going to look for it to retrace
back up we call it retrace back up to 32
or let’s say 30 180 or 32 I’ve quite a
move from 32 down to 31 I don’t
necessarily need it to go back up to 32
but I’ve already booked some profits so
I’ll have alerts at 30 180 3185 3190 32
so at least if it gets above 30 180 I
can start scaling into the short again
and if it doesn’t get all the way to 32
and rolls over like it did in this case
all the way down to s2 I’ve got some you
know I’ve been able to reestablish some
of the position that I have covered into
s1 so managing risk by using
predetermined levels understanding that
as long as it’s even side those support
resistance levels I’m going to trade
that range and until it actually breaks
outside of that range and shows me that
it can hold below the range or above the
range I’m not going to you know press
the position or flip the position in the
case of if it’s holding above resistance
and I should say that I had such a
strong bias for the VIX being up at 50
this morning that I wasn’t it wasn’t
even in my thought process
start to hold about 32 to get along well
know if it did it earlier in the day
maybe in this case it did it right at
the towards the end of the day but I did
get stopped out of my trail my trailing
position you can see on that spike
towards the close above 32 the other
thing that I’ll do is get an alert when
I get stopped out of my short position
and make sure that I have an alert if at
32 31 30 30 180 was at the end of the
day when it gets back below 32 and this
was in a you know I saw one of our
bigger traders actually take advantage
of this when it came back below 32 and
started to show weakness he started to
build into a very large position that’s
like one of the best trades you can do
is kind of a failed you know takes out
the morning high fails to break out and
starts coming down you want to actually
there’s a lot of people caught probably
getting long pressing kind of the long
trade on the volatility and you want to
you want to just hammer that by getting
short as much as you can as it comes
below 32 and it takes out the 31 and see
if you can capture what happened there
at the end of the day and so he had a
really good day because of that just
that one trade where he went max max
size and it would ended up going down to
below $30 $30 a share had the momentum
the other thing to remember is after
three o’clock and especially after 3:30
is you don’t want to feed a final hour
move you may have actually threw in a
tweet related to the spies and we’ll go
to the spy chart now right at the end of
the day the spies tried to break down it
actually went to missus by the way this
markup on the spy chart that’s just from
you know we have that there from the
morning meeting so we had our one to 95
or to 92 98 or three 300s one to 92 and
s two to 90 so when we go into the spy
chart what you can see is I put on r1
and r2 so I was more thinking about kind
of the upside if we could balance it you
can actually see the markup in the
pre-market when we did the morning
meeting I kind of was describing what it
might look like if we actually bounced
from 292 up to r2 and kind of shoot as
we’re doing the meeting in the
pre-market saying okay well maybe it
hold this 292 here if it does it’ll
spike up to r1 to 295 maybe it’ll pull
back hold a little bit higher and then
boom will get r2 to 298 you can kind of
see right on the open
it was below 292 we went up to almost to
s1 we came we pulled back down we made a
higher low at s1 at 292 and then we had
that move to 2 or 1 and then r2 to 298
so spy was pretty easy actually didn’t
rate spy right in the open was until
after I put him on positions on the VXX
in TLT and I moved over after 10 o’clock
to spies which was great it was good
timing because we obviously we started
to kind of kind of balance there and
hold higher and once we got above r1 we
went right up to or 2 and so what I’m
doing there is again in the spies if you
look at it it stayed inside of our price
levels all day even at the end of the
day when it ripped up seven dollars in
the final 30 minutes the high was our to
the morning high and so as long as
you’re disciplined about using kind of
the price price levels and then I guess
the question you say to me is well Steve
how do I determine r1 in order to what I
would say to you is this we have a two
hour free workshop trading workshop calm
I spend 30 minutes explaining how I
select stocks before the market opens
how I develop the levels that’s a start
so click on the link above check out the
two hour free workshop if you haven’t
checked it out yet and I do have a
morning meeting every day for people who
actually do train with us or have our
tools so in its practice you know you
kind of watch stocks trade every day you
have I have three time frames that I
look at I have like my intraday chart
which was the pre mark and the post
market trading I have my 30-minute
two-week chart and then I have my daily
chart and I’m identifying levels like
when we look at this the spies right
here I’m identifying prices where there
had been buyer’s support errors or where
people had bought before maybe it’s the
pre market maybe it was on Monday 298
maybe I’ve been resistance on the way up
when we bounce from from 290 back up to
310 and so now that we’re dabbing below
I’m a there’s a pretty good chance that
if we bounce to that 298 there’s going
to be some supply there for people who
want to get out at better prices but the
main thing to understand here is I don’t
need to use moving averages I don’t need
use the ten-day view up what I need to
do is understand where people where
their people bought prior at prior
levels because that shows me there’s
demand at that price where did they sell
previously in the prior a few days there
means their supply there’s likely to be
supply at those prices and those are the
most important levels by far for
somebody who’s trading intraday or even
intraday or multi-day swing as well
intraday view op obviously is very
important because institutions are
accumulating positions against the
intraday view up or selling positions
against a into Davie lab so those are
the first two we have two more before we
even look at the other two here’s
another lesson for you in terms of how
can you control your risk in a super
volatile time like this number one if
you’re used to trading let’s say you
normally trade the spies with a thousand
shares move your tier size down to 500
it doesn’t mean you can’t have multiple
build into multiple tiers so like maybe
before you were building from a thousand
up to four thousand now go from 500 into
2,000 and or maybe even lower because
again the volatility we’re seeing
intraday like the range today was what
was at $7 which is actually lower than
yesterday’s range that’s the third day
in a row actually now that I’m thinking
about it the volatility has come down
and we’ve gotten up to about a 14 or 16
dollar range a few days ago and I think
it was a $9 to two on Wednesday and then
it was $8 yesterday and seven today so
the volatility is coming in even though
we had a big spike in the the future the
VIX futures this morning with the gap
down on the internet’ ranges are
actually compressing not a lot 9 8 7
but that’s something so anyway getting
back to the last two charts we want to
look at okay so the Q’s as I said I
wasn’t trading the Q’s today I know
people like trading the Q’s so I wanted
that on the sheet I’d opened you can
kind of see the pre market is to the
left you can see a dip below are
inflection but it opened above 204 and
what did it do it went straight to I
guess 206 right on the open and if you
missed that move it opened above 204 so
there’s nothing wrong if you want to get
long right on the open above 204 204 o 5
wherever where it was going to stop
below 2 or 3 70 risk of 30 cents and
write it up you know for a dollar or two
but if you said you missed that but you
so wow the queues really popped off that
204 inflection from the morning game
plan sheet on the open I’m gonna put an
alert at 204 2204 10 204 so when it
pulls back down there at 9:45 or
whatever time that was the alert goes
off you can buy there and then your
target is just the morning pop high
whatever that was 206 I guess and sell
half the position there trail a stop and
sell the rest at 208 which was our first
resistance level or so half of what you
have remaining another quarter at 208
and hold the last 25% because it’s just
because technology’s been stronger than
the market overall
as I mentioned at the top of the video
Apple and Microsoft are nowhere near
their pullback losses from last week and
then finally we’ll take a look at the
TLT chart
TLT was gapping up to 166 so the thought
process here was it was a little bit
tricky because there’s no levels and so
I have where it’s being sold in the
pre-market out on the game plan sheet
166 65 so basically the way we have
looked at it as like okay here’s where
it is in the pre-market they’re selling
160 665 we’re gonna see if it pops
another dollar dollar 50 on the open to
168 will short some common there and if
it does that will try to buy puts for
next week as cheap as we can get and so
that’s what it did on the open it popped
I think the 167 and a half and we boy
I’m not even I don’t remember what puts
we bought we might have we both like the
one the 160 is for next week 4 and we
wanted to go down because we do think
that bonds will actually sell off in the
yield will rally the yield on the
10-year we’ll get back above 1% and
we’ll see the TLT and even if by the way
like yields don’t even have to go up
that much for I think TLT to decay and
come down in price so but we want the
160s for next week we got them really
cheap I think for 70 cents I think the
clues that 220 or 230 or something like
that but the idea is as it’s moving
higher on the open people are not
thinking about the downside and maybe
we’ll pick them up really cheap and the
funny thing about it was in the
afternoon it was basically still trading
at 166 and a half 167 and even though we
paid 70 cents on the open for them they
were like trading at like 220 and so
people were starting to think the way
gapped up four or five dollars this
morning maybe one day next week we’re
gonna walk in and it gaps down four or
five dollars so people are buying
protection and because they’re buying
protection the 160 is basically they
were bidding up our contracts for us and
we didn’t sell them maybe we sold 10% or
something oh and then so in terms of the
common I use that that’s spike right on
the open and it came down to s1 and the
cost it isn’t a very strong up right now
even though I think it’s I think over
the next week or two there’s a good
chance it’ll work its way down maybe ten
percent from the higher so certainly at
least five percent from the I into into
s1 what I’ll do is from an intraday
perspective it comes into 64 a cover 50
to 75 percent of the position
I’ll put alerts back up at the
resistance where I short eight in the
morning and if it comes back up the same
thing I did with VX ax shorted into the
pops into the resistance levels that had
established right on the open TLT it
actually it topped that I remember we’re
topped out but it got up at least 167
and a half where’s able to put some on
in the between 67 67 and a half I don’t
believe I got stopped out of that and so
I mean the essence of it was basically
the other big thing is individual stocks
are going to be moved by the market
overall and the markets moving to three
percent intraday we have what we call
market stocks like apples America AMD is
immoral cat stock and you can trade
those market stocks and you can look to
see if they’re showing showing relative
strength or weakness to the market
overall maybe use that as an indicator
so let’s say AMD today we’re showing
relative strength to the market because
they reiterated their guidance as the
spies are coming in to like let’s say s1
292 if AMD has come off – I think it was
47 at that point
get long AMD by 47 put a stop for below
46 50 even if the market doesn’t bounce
that much off the 292 support level
maybe AMD goes back up to 49 or $50
because it had the positive reiteration
reiteration of their guides and showing
a relative strength and vice versa on
something that’s showing a relative
weakness markets popping in to 298
resistance you notice something’s
showing relative weakness be more
aggressive shorting that as opposed to
shorting the market overall and these
are all little things that you can do in
the mortgages be
like this and I’ve tweeted out a couple
of times already that you can sit this
one out if you haven’t been trading for
more than a couple of years paper trade
get used to it although I’ll say this
you know we’ll see what happens over the
weekends with the kind of the
coronavirus announcements the great
thing is going to the weekend people are
anticipating the u.s. number of cases
are going to skyrocket and there’s a
pretty good chance that’s going to
happen and there’s gonna be we’re gonna
get those numbers on Monday the best set
up from a training perspective would be
the numbers go up from whatever they are
in the US it’s 200 cases maybe goes to
8,000 cases we cap down three or four
dollars on the spies inside of today’s
range and we see that we just read on
the open the first move is up and we’ve
noticed that volatility the VIX futures
are coming down more that’s that’s how
you put in bottoms the expectations
people are very nervous going over this
weekend and so anytime there’s an
expectation that something’s going to
happen and people are leaning in a
certain direction right you want people
leaning you know the spies are gonna go
to 280 to 7 do whatever we gapped down
Monday morning to today’s Allah to
today’s low or close to today’s low
maybe even below today’s low and then
the first move is like a rip to the
upside and we can’t you know we’re
holding above 295 we could go to we
could close the day at 305 and that
could be it you have to mentally be
going through those scenarios and
understanding what is it scenario look
like if I think you know the markets
going much lower prices what is the
scenario for actually this was it this
was our retest or if this was our higher
level right we didn’t actually test
below from last Friday and those are the
things that the guys on our desk we’re
doing every day and to take advantage of
this obviously we’re not sitting this
out this is this is kind of this is our
Super Bowl this is the NBA Finals this
is the World Cup championships and so
going into February we didn’t know that
you know that people were gonna sell all
this I didn’t care about the coronavirus
and we wanted to encourage one of our
traders who we felt could be performing
better and you know our floor manager
said to him okay let’s set a goal you
know twenty thousand dollars this month
and he set that goal he says if you hit
that goal you know you’ve been talking
you’ve been saying you need
noise-canceling headphones
if you hit that goal I’m gonna get just
whatever noise cancelling headphone
jiwon and then all the sudden volatility
exploded and I was kind of like wow
that’s kind of a nice deal that you gave
him you know maybe we should double that
goal or triple that goal and we said no
all right let’s double the goal and what
did he do we did 50,000 for the month so
the goal coming in for normal moral
conditions was 20 so I’m here to say if
you’re watching the video Kenny
pick up your headset get your numbers
congratulations please at the bottom of
the video if you have ideas for other
videos or have other things you’re doing
during this high-volatility environment
please put them the sooner you have your
ideas and things you want us to cover
the more I can start thinking or we can
start thinking about doing these videos
don’t have a lot of free time during the
trading day when the markets like this
but if I see some comments and questions
over the weekend I can start to think
about it during my our non-working hours