Trading with the volatility
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  1. #1

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

  2. #2
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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.

  3. #3
    Only one wrong trade can make zero our trading account. Because forex market trend moves so fast and it can make loss so fast. So all the traders must need to trade in forex with cool mind and also many analysis. So we should not trade in forex with the volatility.

  4. #4
    Quote Originally Posted by mehwishraheel View Post
    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.
    If you will working in the volition market so then you can easily so then you can loss easily all your capital but some chance are good because you can earn some good amount in the seconds.. but this is not a professional and depend on your luck. so avoid because the professional way is best for all traders..

  5. #5
    Trader lawners1791's Avatar
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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.

  6. #6
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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

  7. #7
    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.

  8. #8
    Trader lawners1791's Avatar
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    Quote Originally Posted by AmitChallenger View Post
    Market becomes volatile especially during the time of fundamental news and events.
    as appealing with the use of trading system of the choice that those to leaves with the better on chance for trader to defines of one with the decision on approaching risks as securing manage to avoid the worse on obstacles to completes number of the target to close within the range of terms.

  9. #9
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    This is not a good decision and a newbie should definitely not go for it. Only those people who have Real Experience and practice and they think that they can sustain in such a volatile market and they have been trading the news occasions, they can try their luck in volatile market. Because it is true that the volatile market can become really rewarding at sometimes and it can give you a lot of money within a small time but it may also demand its price.

  10. #10
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    Quote Originally Posted by ravian View Post
    This is not a good decision and a newbie should definitely not go for it. Only those people who have Real Experience and practice and they think that they can sustain in such a volatile market and they have been trading the news occasions, they can try their luck in volatile market. Because it is true that the volatile market can become really rewarding at sometimes and it can give you a lot of money within a small time but it may also demand its price.
    WE take big risk only when we have good experience about trading and if we have less experience then it is not good for us to get the best one we need to have the good strategy in start so we can follow it with more accurate way , only our experience tell us how we get risk in market .

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