Volatility!

What a day on Friday! The largest down day in the DOW of the year and the largest daily range on Oil since June last year.

Your number one priority when it becomes clear it’s going to be an unusual day is to be 100% certain your risk is managed. At the very least that’s going to mean reducing your trading size, ensuring your stops are placed and if necessary standing clear. I know how seductive an active market is to a daytrader but there is no shame in standing back, taking notes and waiting for the volatility to die down a bit (using an ATR as a guide) before you get involved again. It’s so tempting to think big moves = big bucks but remember it works both ways. I wish I’d had taken that advice some days when I started trading in 2001!!

But saying that, for the experienced trader an active market offers some great opportunities if you choose to get involved. The setups are plentiful and if you get on the end of a good move it can run much further than usual.

Personally I thrive on this type of market, the large volume means the moves are much cleaner, the tape is easier to read, the flushes are more obvious, the general sentiment is clear and you can really squeeze some good profits out of the action. That’s not to say you don’t get it badly wrong occasionally…. (see my second to last oil short!!) But the winners will outweigh the odd duff trade.

I will do a detailed video journal on Fridays action as it’s definitely one for the archives, but for now here are my trades for the log, with a few annotations. Notice how the setups have exactly the same premise as they usually do on “normal days”, except I adjust for the volatility by giving them more room to work (wider stops) and having the confidence to hang onto a winner for as long as possible. (Still a weak spot in my trading as you will see from a few missed opportunities on the early Oil long’s but getting a good trailer on a DOW short made up for it)

Tick pullbacks, Flushes at a key time, 3 minute cycles.

Click to enlarge:
DOW

OIL