And the volatility continues…..between FOMC, craziness in crude many of the commodity markets experienced some extreme volatility these past few weeks….
Be careful. These are different market conditions and high volatility may require you to adjust your stops based on volatility, may require you to adjust your entry techniques and in general will require you to do some home work, look at previous periods of similar volatility and adjust your trading accordingly.
This may be a “stupid example” but will serve the purpose:
If 2 months ago you were trading the mini SP and 3 point stop was sufficient for your method and entries, I can almost say with 99% confidence that it will not work during this period of volatility as the market can move 3 points in 15 seconds and take you out very quickly just to go back to where you thought it would.
Do your homework. Trading is NOT easy to say the least and markets evolve and change all the time. Markets also go from periods of lower volatility to higher volatility etc.
If I can be of help – let me know and best of trading to everyone.
The FOMC interest rate decision is due at 14:00 ET in the US tomorrow ( Wednesday, Dec. 17th ).
FOMC days have different characteristics than other trading days. If you have traded for a while, check your trading notes from past FOMC days that may help you prepare for tomorrow.
if you are a newcomer, take a more conservative approach and make sure you understand that the news can really move the market.
The following are suggestions on trading during FOMC days:
Reduce trading size
Be extra picky = no trade is better than a bad trade
Choose entry points wisely. Look at longer time frame support and resistance for entry. Take the approach of entering at points where you normally would have placed protective stops. Example, trader x looking to go long the mini SP at 1965.00 with a stop at 1959.00, instead “stretch the price bands” due to volatility and place an entry order to buy at 1959.75 and place a stop a few points below in this hypothetical example.
Expect the higher volatility during and right after the announcement
Expect to see some “vacuum” ( low volume, big zigzags) right before the number.
Consider using automated stops and limits attached to your entry order as the market can move very fast at times.
Know what the market was expecting, learn what came out and observe market reaction for clues
This is another great example why a trading journal would be an asset, as you can go back and check your notes from previous FOMC days.
WOW…December is turning out to be an extremely volatile month so far!
Much on the heels of the wild sell off in Crude Oil but nonetheless….
Quick update on some of the news behind the price action below:
TradeTheNews.com Weekly Market Update: Risk Off Resurfaces
Volatility made a big comeback this week as the S&P500 index saw its first weekly loss in two months and the crude meltdown showed no signs of letting up. After two solid months of declining oil prices, the more than 10% drop in WTI futures this week, from $65 to below $58/barrel, finally triggered some significant risk-off behavior over deflation concerns. Most market watchers continue to tout the economic benefits of lower oil prices, but the speed of the decline has become unsettling. The jittery market largely ignored more strong US economic data, including excellent November retail sales and a 7-year high in the University of Michigan confidence reading, and gave more weight to ugly European industrial production and CPI data. In China, the November CPI and PPI inflation readings were concerning, with CPI hitting a five-year low, while additional economic and political reports cemented the expectation that China will reduce its official growth target for 2015. The DJIA had its worst week since late 2011, dropping 3.7%, while the S&P500 fell 3.5% and the Nasdaq lost 2.7%.
US Treasury yields have seen a notable contraction this week. On Friday, the 30-year UST ended around 2.74%, the lowest weekly close since the end of 2012. The yield on the 10-year UST fell as low as 2.09% (Recall that during the height of the Ebola angst in mid-October, the 10-year and 30-year yields briefly dipped as low as 1.86% and 2.67%, respectively). Spreads have narrowed as short-dated yields climbed in preparation for Fed tightening, further flattening out the yield curve.
Spoke with a few nice clients today about trading, the recent low volatility in stock index futures and trading in general.
The main point, which I had to remind myself and clients is that we need to adjust our trading to the markets, the markets will not adjust their behavior to accommodate us.
More than a few examples:
Stock Index futures back to “controlled/manipulated mode” with not much fear = tight ranges, most of the move happens overnight, low volatility.
Veteran’s day today – If you are trading bonds like I do and did some homework from previous Veteran’s days, you would have found out that becuase the pit session in bonds is closed and the banks are closed, the preferred method for today would have been to counter trend any moves over 7 ticks from yesterday’s close. As it happened bonds were down about 11 ticks at the low for today and finished unchanged…..There are many more examples and keeping a good trading journal can help you keep track of your research and find certain days with high probability for certain behavior.
Talking about Veteran’s Day made me realize that yesterday’s blog should have been dedicated to our veterans and not about the markets, but better late than never…..:
Amazing to see the difference in what I consider “an influenced market” like we seen the last week or so with Japan QE, versus a market that was free for a bit about 2-3 weeks ago….when it expected QE to be over….
Last few sessions we see the big moves happen overnight with much tighter trading ranges during the day session versus a market that had WIDE ranges and “healthy” volatility both ways a few weeks ago…..Bottom line the market is what the market is and this is what one needs to trade and not what one would like to trade…..
On a different note, I mentioned before that i like using range bars and Renko charts when it comes to short term trading versus minutes charts.
Main reason, is that i feel that Range/ renko/ Volume charts will complete faster when there is action and speed in the market , hence have potential to provide a signal faster and vise versa, may filter our some noise when the market is dead.
below you will see today’s mini SP chart. I am using 5 ticks range bar chart along with some ALGOs I created and have confidence in.
Some BIG news last week…I believe these news will affect the markets for the near future and highly recommend reading, understanding the basics as you go about your trading and day trading.TradeTheNews.com Weekly Market Update: Fed Passes the QE Baton to the BoJ
The Fed ended QE3 this week, six years after beginning the extraordinary effort to ease monetary condition in the US, and just two days later the Bank of Japan doubled down on its own QE policies. Note that the Fed retained its language on keeping interest rates low for a “considerable time” but dropped its “significant” wording in regards to slack in the US labor market. In addition, the Q3 US GDP topped expectations and grew 3.5%, according to preliminary data. Global equity markets surged higher following the events, with both the DJIA and S&P500 back at all-time closing highs on Friday, the Nikkei up 5% and the Nasdaq at its best level since February 2000. Shanghai saw more modest gains after the flash manufacturing PMI for October gained a bit and Q3 GDP came in at +7.3%. For the week, the DJIA had its biggest gain since early 2013, rising 3.4%, the S&P500 rose 2.7%, and the Nasdaq added another 3.3%.
RISK DISCLOSURE: Past results are not necessarily indicative of future results. The risk of loss in futures trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition.
