Hey Sommi
When the Vix/Vstoxx hits the 20 mark and we get these wide ranging days in equities. How do you adjust your strategy to compensate with the increase in volatility? I've noticed during these times that open drives after the open don't tend to pullback to allow you a decent r:r entry. Are you just hitting the offer/bid and riding the momentum to an auctionable target like a previous day high... or like me yesterday attempting to ride the FESX to a few ticks in front of the ATH in the ES.
When the market does retrace after it's parabolic openings, how are you picking your spot for any secondary move in the same direction that may occur? Even Mid/Vwap trades don't seem to hold when volatility increases. It's also tricky to spot the reversals in such wide ranges unless there is a massive shift in the delta and we've retraced more 50% of the move.
Appreciate your thoughts as always.
Adjusting strategy for volatility
Trump getting elected was exactly like Brexit in terms of volatility; Extreme volatility on the first day, half of that on the next day with very dangerous sweeps, and then almost gone by the third day.
What I noticed was, the first day of volatility was very fluid. But as every hour passes, more people wake up into the game and start doing their panic orders with sweeps. The chop is more vicious, but sometimes order flow is more obvious.
Now,
on the second day of these big triggered events I've seen in the past few years, there are late-game players who come in and have no idea what they are doing. I saw very dangerous weird sh*t in the Aussie SPI, the Japanese Nikkei, the Chinese H-Share, the U.S. T-notes and the S&P500 Mini.
My theory is that people who have no idea how to trade, are now forced to trade on that day and at a much higher frequency than normal. Therefore, there are more splashes, icebergs, and things that don't make logical sense happening in a dangerous fashion. Spreads blow out and go one way because a whole host of portfolios are adjusting, and most participants have no idea how to work an order so they just start clipping market to get things done. For me and you, this means it's very easy to have the best day or the worst day of your month or year.
I also think many people have wishful thinking... waiting for another GFC-like moment where there is no market for 4 months or something. This is never going to happen for precisely this reason; every bottom-feeder with an algorithm who is auto-trading will eventually have to go through a losing period where they never turn their bot off. This would be an entire 12-months potentially. They will not turn them all off on one day. This is just the nature of markets and algorithmic trading. So, not only do you have garbage price action and market rhythm being ignored, you have these bottom-feeder algorithms who have just halved their size and keep participating as normal.
This makes it ever so important to
get out immediately when you are wrong.
Adjusting size is about the best thing you can do along with sitting on your hands early
I learned from Brexit to halve my size immediately if bids and offers have dropped and volume is significantly higher. Instead of a 100 clip it will now become 50 clip.
Instead of taking a tick loss, it becomes two. Instead of winning 2, it becomes 4. The Trump Day is over and it seems like volatility has halved each day moving forward. I have no interest in binking the after-math day (which I know is dangerous in terms of chop) but some others like having a go at this dream. Some win trophies, others bleed to death. How much do you value your career? Realistically on this day, it seems like most people are risking 1-3 months to make 1-4 weeks. Unfortunately, you don't get another shot at this tomorrow.
Also, as you were attempting to ride the Eurostoxx yesterday so was my good friend. I could hear him on the microphone with extreme frustration because the pull-backs were insanely rough. I trust you both that the action was indeed consistent with dumb-ass brokers and traders who have no idea how to trade, now being forced to execute panic amounts of orders and portfolio adjustments. On top of this, you have algorithms in there auto-exiting in a thinner market. For this reason, I label the Eurostoxx and Dax both dirty sl*ts.
I noticed that in every single market, Equity and Bond, when the reversals came, they just ignored everything on the way up and everything on the way down. I copped a beating before the European and U.S. opens even began whilst trading the early Asia session, so I could see just how dangerous the sweeps and reversals were. I knew it wasn't just a "Chinese market" thing, but an Every-Market thing.
On the bright side, you now have the experience and to me that is worth a lot to a traders career. I can't tell you how many times I have been caught the day after an event, in a spread, because it just doesn't work and everything is f*cked.
What I found in these rare days, is that Charts play the most important role. They just seem to work and hold, potentially because everyone is looking at them and doing everything at the same time. As the day went on, I noticed that there was no established 'range' or guidance for any market. They really did not give a f*ck where they want, be it Equity or Bonds.
So now, you have to ask yourself, how much do you value your account and your career? Because, let me tell you of the truth; you only hear of the people with the Biggest Up Days for these periods. The guys with the Biggest Down Days put their heads down and disappear into the shadows.
Because I have lived both of these scenarios, let me lay them out here; Imagine what you feel like tomorrow if you had your Best Up Day? What if you had your Worst Down Day? You won't be retiring from trading if you had your biggest up day, but you'll have everyone masturbating to the fact that you got creamed beyond imagination trying to bink it.
This is why I halved my size, locked my computer early and played games when the danger signs appeared.
