Trading with the volatility
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    Trading with the volatility

    Hi traders.

    Today I’m going to share with you one simple concept that can help you get profit in the market that you don’t understand. What I mean is that sometimes markets don’t show any signs of directional supply and demand. They go back and forth, sometimes you see that something is happening (some momentum is developing), you expect it to continue, but more often than not price suddenly drops beyond all supposed support levels.

    Just a look at the chart below - can you say that you have a predictable price action here?

    volatile.jpg

    No indicators can help you decypher this action as well. Such market condition can be best described as unpredictable and volatile.

    But is it really impossible to succesfully trade in such market having limited risks at the same time? Every professional trader is aware of risk he is going to take, whilst amateur traders can trade without stops. In other words - can we have reliable and reasonable stop in such market?

    Yes, we can. But in our trading we have to rely not on price action itself (it can be confusing) but on volatility. Look at the screenshot of ATR indicator below. This indicator measures volatility. You see that volatility cyclically moves in sort of a horizontal channel:

    volatility2.png

    The key here is that when you have period of reduced volaility, it is often followed by growth of volatility pretty quickly - it is very uncommon for the market to stay in a phase of reduced volatility for a long period of time. But how can we benefit from that? We don’t have any volaitility index to trade.

    Yes, but nethertheless we can benefit from such behavior of volatility. First of all, small parameter of volatility means that our stop loss can be also small. Secondly, small volatility often occurs when we have very tight trading ranges like this:

    reduced_vol.png

    Guess what happens when price emerges from such trading range? Right, this is volaility break. Price breaks out from this range and makes significant directional move, more than 30 pips. We don’t know the direction of further breakout, yet we know that possibly this breakout will lead to directional move. The more time it takes to form trading range with low volatiliy, the more rapid breakout will follow:

    vol2.jpg

    So, you can just place buy stop or sell stop orders to get on this move, having very small stops at the same time. Breakouts can be false, yet you lose a few, and earn much more. The key principle here is to cut your losses quickly and never “nurse” bad trades (this is universal principle of momentum trading)

    For example, such type trade could be described this way:

    1. You see extended trading range with reduced volatility;
    2. You place sell stop order to enter a position on a breakout from this range;
    3. You don’t move your stop until price retests previous level and ensures that there are no more stong buyers in this market;
    4. You enjoy freefall of price and prepare to take your profits.


    vol3.png

    But of course, you have to be aware of overtrading and be very patient in a process of trade selection. If you do everything right, you can have nice profits trading along with volatility, even if you don’t have any ideas of destination. If fact, when markets are trading in a trading range (they are supposed to trade there 80% of the whole time), nobody can really predict destination of price, so trading with the volaility can be a good option.

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    Last edited by Value trader; 12-17-2014 at 11:04 PM.

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    Well, there are certain things that you have discussed here, I want to tell about myself, I don't use ATR in my trading, so I can not comment on that, but I want to comment on the market sideways and range bound market, there are several times I see market moves range bound and sometimes sideways, we need to see whether there is any kind of chart pattern is forming or not, whether it is forming, engulfing or ending pattern. I also use trend line to understand the market support and resistances, you have provided good information, but it is mixed.

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    as to enter with the good chance on earning with the returns of the work with the signals analytics; good trader manage of the good spends as to spares of the good exchange as measuring of more with the further on crawling of the higher opportunity as to compound of the better returns with the accordance.

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    Trading with high volatility is a profitable trading system but you should have a good strategy for that. I think a trading system should be well tested first we should spend time with high volatile pair in our demo trading account and should make a good trading strategy for couple of high volatile pairs. Personally I love to make money in high volatile market condition

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    Quote Originally Posted by forexlearner View Post
    Trading with high volatility is a profitable trading system but you should have a good strategy for that. I think a trading system should be well tested first we should spend time with high volatile pair in our demo trading account and should make a good trading strategy for couple of high volatile pairs. Personally I love to make money in high volatile market condition
    Market becomes volatile especially during the time of fundamental news and events. The safest way to trade with fundamentals is to note the calendar for news with high impact and steer clear the market until such news is out and factored into the market then trading can be done inline with the outcome of the report.

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    Nice thread sir but this type of trading is for experience trader who have huge amount of knowledge and experience in forex trading in very high volatile market the profit is high but at the same time the risk to loss money is also to much high and you can loss lot of money so follow rules of money management and always open position with stop loss

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    Some of the professional traders use the volatility i the trading and all of the used data given can be used as a tool to guide them to a certain order . so I may think of the indicators of volatility which may indicates to us the meaning of a good gestures to the high or low deals or the trades in the whole market

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    Quote Originally Posted by hosny55 View Post
    Some of the professional traders use the volatility i the trading and all of the used data given can be used as a tool to guide them to a certain order . so I may think of the indicators of volatility which may indicates to us the meaning of a good gestures to the high or low deals or the trades in the whole market
    If you really want to enjoy the quick earning power of the market, then go for the volatility trading skills. This would help you to filter the market you should enter or not enter at any point in time. Forex traders without the best work of volatility would still make the mistake of annoying slow market, and that might still end up in losing.

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    I think its good to trade in high volatility but its good for experienced trader to work in high volatility as a new trader is you have not enough money in forex trading than you should not work with high volatility market because high volatility market also have high spread ...

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    Quote Originally Posted by Usmanali518 View Post
    I think its good to trade in high volatility but its good for experienced trader to work in high volatility as a new trader is you have not enough money in forex trading than you should not work with high volatility market because high volatility market also have high spread ...
    When it comes to the trading of volatility in the market, the issue varies, it is very good to know that volatility is just an activeness in the market, and if the activeness is much, it might lead to whipsaw and other bad market conditions. It might only be good if the market is seriously trending or reversing at any given time.

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