In 2009, our desk outperformed our peers. We did so playing intraday momentum mostly in AIG, FAS, FAZ, as their intraday moves were outsized.
We were short when a good risk/reward visited and long when a good risk/reward appeared. We made a series of Move2Move trades. In and out and in and out and in and out. We call this momentum trading. We might also call this momentum scalping.
As a firm, we moved away from this type of trading as volatility decreased. We still taught this strategy, but advised to use it selectively. When volatility is compressed it does not work well on market plays and ETFs, save select days.
The past two trading days have seen outsized moves in markets, stocks, and volatility. I have noticed some traders feeling pressure to capture the big move. Let me offer some advice…….that is not necessary in this market.
If you are a big trader and want to play for the big move that is fine. Especially if you structure your trades cleverly. But this is not necessary with an elevated VIX.
And I wonder if it might be better for developing and new traders to momentum trade with a Move2Move strategy in this current market environment- elevated VIX. Hawking products like UVXY, VXX, SPY, IWM, QQQ is strategically sound.
The elevated VIX is what will pay you. Capturing a series of medium size moves, in and out, really adds up. And you can capture them on elevated VIX days. And you remove the pressure of having to capture the big move.
Some traders positioned themselves for the big bounce on Friday. And then we sold off hard into the close and they missed the opportunity to short. They had to cut their long losses. And the market was too low for swing shorts below SPY 262.
But what if you removed that pressure to capture this big move? What if you recognized the weakness into the close and played the downward momentum with Move2Move trades? You would have employed a strategy confluent with the market direction and let the elevated VIX work for you.
Let the elevated VIX work for you. Short overextensions. Hit breakdowns. Buy breakouts. Buy oversold moves. Exit when the move subsides. This works in market stocks and products with an elevated VIX.
This market is not exactly like 2009. But the style of trading employed more selectively to a sector in 2009, will be very effective in this elevated VIX environment and expressed with market products and stocks.
*Now having said all of this, visualizing how to position for a bounce Monday if we gap down, sell off, and then stop going down, and hold higher ought to be part of your preparation this weekend.
*no relevant positions