Sizing and Entries in This Volatile Market

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Surviving as a professional day trader means adapting to the ever changing conditions you’re presented with. In this volatile market how you size your positions at entry is so important. If you think you can still set stops tight like you did when the VXX was in the teens you will miss a lot of nice moves because you got stopped out and didn’t find a way back in the trade. When the volatility is higher you have to have wider stops and give stocks more room to breathe.

One way to do this and still have the ability to trade with your normal sizes is to enter your trade in two or more pieces and use a range rather than a precise price for entry. This can work especially well for you in a counter-trend trade. Initially enter ½ or 1/3 of your normal position and be prepared to enter another piece when the tape gives you some confirmation that the trade can work. This allows you to give a wider stop as the stock moves more free in the volatility and stay in a trade that may eventually work. If with the smaller size you keep a tighter stop it also will keep your losses small thus giving you the mental ability to get back in a trade that already handed you a stop out loss.

Newer traders struggle with the ability to get back in a trade that handed them a loss, maybe only moments earlier. In volatile conditions finding a way to get in a trade and stay in is necessary for success. Losses still have to be kept small but when you are right the volatility will take care of the profit side with no problem. As a day trader you should be loving this market every day and the opportunities it is giving. Your number one job as a day trader is to find good risk/reward setups and trade them no matter the volatility. So as long as you are able to control and quantify your risk get involved otherwise pass on the trade.

The other skill set that will serve you well in this market is letting the volatility work for you and not be afraid to add to positions when they confirm. Learning how and when to add properly is where tape reading can be of great assistance. Reading the tape isn’t some magical potion that keeps you from having losing trades, but once proficient at it, trading does become more fun. Enough can’t be said for having the ability to find setups that risk a dime for a dollar or more.

2 Comments on “Sizing and Entries in This Volatile Market”

  1. Great post Jeff. Piecing into positions is something I need to improve on. I can’t count the number of trades I’ve been stopped out of bec I didn’t give them enough room to breathe. I didn’t jump back in most times too. Just some areas of my game I need to work on. Thanks for insights

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