Trading volatility, ATR and climax

thehung111

thehung111

Just wonder if anyone has creative ways on trading volatility. For me as scalper, when a day is overly extended i.e. reaches or pass ATR of last 4-5 days, there is usually a very high probability that the price will reverse for some quick gains. I think there are a few ways to trade volatility:
  • volatility expansion breakout: after a long period of days with small range, for next day if it is above previous close + % range (e.g. 70%), buy; if below previous close and % range , sell
  • mean reversion: if current day is overly extended, scalp for reversal. Of course this will fail horribly if the trend is super strong. Need to wait for double confirmation (either double bottom or double top near support/resistance)
I know VIX is popular, just did not find it very useful.
 
I specialize in it, daytrading UVXY daily... volatility is very hard since it is so variable. And counterintuitive, eg buy 52week lows, buying gaps down works, vs regular stocks.

Re trading volatility in general it's all about expanding ranges eg see T PFE recently.

Mean reversion pivots are excellent for clean, wide range charts
 
KCalhoun said:
I specialize in it, daytrading UVXY daily... volatility is very hard since it is so variable. And counterintuitive, eg buy 52week lows, buying gaps down works, vs regular stocks.

Re trading volatility in general it's all about expanding ranges eg see T PFE recently.

Mean reversion pivots are excellent for clean, wide range charts
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yea, PFE is having a very nice range expansion. I only trade indicies as they are almost 24 hours. Still have not figured out how to utilize VIX properly and other sentiment indicators.
 
zghorner said:
have any of you ever played with RVI (relative volatility index)?
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Bollinger Bands are what I have been using for years and love using on different TF's so for example a 30 min and a 5 min on the screen I am a successful scalper of the indexes and could not do without BB

Obviously, Volatility is Mean Reverting -- So, looking at longer time frame and scalping on the shorter is my reliance for profit,
 
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MACD said:
Bollinger Bands are what I have been using for years and love using on different TF's so for example a 30 min and a 5 min on the screen I am a successful scalper of the indexes and could not do without BB

Obviously, Volatility is Mean Reverting -- So, looking at longer time frame and scalping on the shorter is my reliance for profit,
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Good post. I have scant experience with Bollingers but it doesn't surprise me that diligent work could get some good setups and triggers with them. I like the method you outline above. How long did it take to get where you could "spot setups from across the room"?
 
easymon1 said:
Good post. I have scant experience with Bollingers but it doesn't surprise me that diligent work could get some good setups and triggers with them. I like the method you outline above. How long did it take to get where you could "spot setups from across the room"?
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Once one understands what BB are based upon (Reversion to a Mean (20 SMA) and 2 standard deviations from the mean for the top and bottom of the bands) Once understood that the standard setting for the BB: 20 SMA (Center line) and the top Band and the Bottom Band is 2 Standard deviations -- then you see that the bands CONTAIN 95% of all the bars -- namely the price movement -- Then it is very simple to grasp and see what the volatility effect is on the bands and thus the trade opportunities. Learning time is less than one hour and since it is visual on the chart profitable trades (rule based) are clear and abundant. Bands constricted NO trades. Bands expanding and wider lots of trades. When bars are above the center (20 SMA) then that is indicating a long bias. But when it breaks the Center SMA with any volume it produces short trades. If one is risk adverted then just wait for a confirming (next bar on lower TF (time-frame or planned duration of the trade). One does not even know why or how BB's work since it is ALL Visual. As some have said, "Even a Monkey Could Make Money !" If this is not clear then I will post videos of my trades.

Hoping this helps,
 
MACD said:
Once one understands what BB are based upon (Reversion to a Mean (20 SMA) and 2 standard deviations from the mean for the top and bottom of the bands) Once understood that the standard setting for the BB: 20 SMA (Center line) and the top Band and the Bottom Band is 2 Standard deviations -- then you see that the bands CONTAIN 95% of all the bars -- namely the price movement -- Then it is very simple to grasp and see what the volatility effect is on the bands and thus the trade opportunities. Learning time is less than one hour and since it is visual on the chart profitable trades (rule based) are clear and abundant. Bands constricted NO trades. Bands expanding and wider lots of trades. When bars are above the center (20 SMA) then that is indicating a long bias. But when it breaks the Center SMA with any volume it produces short trades. If one is risk adverted then just wait for a confirming (next bar on lower TF (time-frame or planned duration of the trade). One does not even know why or how BB's work since it is ALL Visual. As some have said, "Even a Monkey Could Make Money !" If this is not clear then I will post videos of my trades.

Hoping this helps,
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I understand what you mean. Personally, for me, I found BB too obvious :D For my setup, I always keep a 5 mins chart for short term and 4 hours for big picture view. Also added 20 EMA, 200 EMA. EMA is more responsive comparing to SMA. So when BB expands, the price action is quite clear (BB would just provide some visual distractions). I think the setting need to be around 2-2.25 (the default of 1.5-1.75 would produce lots of false reversions).

There are probably a few strategies around this:
  • if outside of higher band, observe price action. If it reverts to middle SMA, go long for pull back
  • if outside of higher band, short only if there is at least a double top
 
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