Trading this volatile market

BellaMike Bellafiore's (Bella's) Blogs1 Comment

After the close some traders who I personally mentor send me a review of their day.  One trader emailed:

Overall- Today was a productive day both in terms of learning and in terms of P&L. I have had better days in terms of P&L, but I came out of a hole on the open and I am more proud of that (being able to stay focused and confident down over 100) than of making money. I also executed on an exhaustion reversal, a play I really wanted to learn to trade. Today was one of the more difficult trading days I have had so far, even though it was filled with opportunity. I learned to be mentally flexible, agile, and aggressive. There has clearly been a different tone to the market over the past two weeks and adaptation is key to success here. One thing I am worried about is that I (BELLA/GMAN NOTE HERE PLEASE) feel that I am over trading. I traded 18 tickets today, which is double a very active day for me, and I think I might be too focused on not losing than on making the real move. I can’t decide whether this strategy is necessary to protect yourself from this kind of volatility or if I am missing the real moves because I am scalping. I am also concerned about trading too many stocks, but there is so much going on in such a wide range of stocks that I feel it might be necessary to trade a large number of stocks, if that is what the day calls for. Let me know your thoughts. Thanks.

After the close Steve sent this email:

make trades. make trade. make trades. follow sammy’s lead and the other guys whose volume has exploded. you should be trading 3X your normal trading volume right now (in very few stocks). get out of your comfort zone. this type of down move could keep us in high volatility mode all the way through labor day.

After the close I talked to a bunch of new and developing traders in our training room.  I mentored:

a) trade more

b) check out the ETFs

c) consider market stocks

d) make more momentum trades using the most recent trend

e) trade in an out more

f) scalp trades will work more

This is an adjustment to our trading.  Normally we focus on Trades2Hold.  As I discussed in One Good Trade a consistently profitable trader must adapt to the present market.  In this market you want to make more momentum plays following the most recent trend.   Scalp trades will work more. The potential reward for all trades spikes when volatility rises so more trades offer an excellent/risk reward.  Your volume should increase 3xs.  You do not have to just trade the Stocks In Play but can focus on ETFs and market stocks.  Just trading SPY is fine.  You should expect to make much more than your normal P$L on your best days.

While your P&L will likely increase the most significant part of days recently is how much you learn.  For the new and developing trader these days can add a week a experience to your career.  Traders developed so much faster in the Fall of 08 because they had the opportunity to make so many more trades during the Financial Crisis.  5 days of trading in a volatile market can be 5 weeks of learning.  You are trading more.  You are making plays you normally do not make.  These plays then might then be added to your quiver.  For example, one new trader discussed with me a reversal pattern trade that he made yesterday on the advice of GMan that he now wants to add to his playbook.

Welcome to this different market.  What adjustments are you making to your trading in these markets?


One Good Trade

One Comment on “Trading this volatile market”

  1. I switched from trading CL to a (normally) lower volatility FESX & 6E contracts. These give the more steady and straight moves and with less HFT.

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