Trading volatility: adjusting to changing market conditions


Bulls on Wall Street

Trading volatility is another ball game. We saw it come back on the market this week for the first time in a while.

Despite showing the last 9 months, stocks do NOT increase every week.

Learn how to adapt to changing market conditions. There will be days when you will be afraid to look at your portfolio. This blog shows you how to trade in volatile market conditions:

Keep the size small

Many new traders feel that the bigger the position size, the more you automatically make more money. In volatile markets, you can make less money by trading large positions.

The increased range and fluctuations in your PNL make you more emotional. Hence, make bad trading decisions. You will see some wild swings in your PNL and focus on the money instead of the market trend.

You don’t have to trade as much to make good money when you have this type of volatility. The reach extends to all stocks when the market pulls back. Keep wider stops and let your trades work.

Scaling in and out of positions

My favorite trick to take advantage of volatile market conditions is to get in and out of my positions. This means that I will buy and sell ¼, ⅓ or ½ of my positions instead of buying and selling the whole thing every time. This is useful in volatile market conditions when there is large swings in any direction.

I find that scaling helps newer traders stay less emotional and minimize losses. There’s nothing worse than taking a big step in your favor, not taking any profits, and then bringing it back to your starting price and turning into a loss. If you take ½ or ⅓ of your profit, you can get some cash flow while also being able to take advantage of a bigger step. Here is an example:

Trading volatility

You can also scale with your entries. This is a great way to keep your losses down if you are not on the right side of the trend. If you initially only occupy half of your planned position size and it turns out that you were wrong, you take a very small loss. These are key concepts when trading volatility.

The next time you get to the right side of the trade, you can add the second half of your position and have a much bigger winner. This keeps the risk / reward ratio strong and a high profit share is less important.

Know your trading style and stick to it


Know who you are as a dealer. Knowing how much heat you can take (based on your account size) and your general skill and mental attitude are an absolute necessity in this market in order to know how to or should not participate in this market volatility.

If you have kids or work that focuses on doing things, this is also a good time to sit back and watch and sharpen your knives. It is a common misconception that volatile markets are where people make the most money. In my experience, the best markets are trending markets with almost no volatility as stocks are rising every day and the trend is obvious!

These are the markets where you really want to speed up the pace for 95% of traders, even decent ones. Stay safe! Better times are coming!

Killer week in the chat room for the last few days. All of them have done an exceptional job, recognizing the changes in trends and being nimble. When you’re new, it’s okay to just sit and watch and learn. Be patient, build your skills, and wait for your niche setups.

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