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Thread: Trading with the volatility

  1. #1
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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?

    Attachment 11882

    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:

    Attachment 11883

    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:

    Attachment 11884

    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:

    Attachment 11885

    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.


    Attachment 11886

    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 10:04 PM.

  2. #901
    Trader Rylai's Avatar
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    Quote Originally Posted by Abu George View Post
    I want to add that the trading with the high volatility can be better for the traders who has a very good experience to treat and expect the market very strongly . also with some help of the effective strategies there can be very good results for them as they can be very excellent in having control over their emotions , and willing to find an effective tools to think of the market next steps
    More experience of a trader should tell how they can avoid unnecessary volatility and stick to the usual movement they always trading with. some traders who experienced still like to trade in sideways market instead of taking high risk during news. the reason possibly because volatility in market can't be completely analyzed well and to reduce the risk of loss, slower market is better to trade.

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  3. #902
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    there is no doubt that the best results for the trading can be got by understanding the real ways for the trading by having good and effective approaches for the trading the volatility is one of these tools which can be very good at appointing the perfect tools to follow . and this may be very effective to find good points to trade from

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  4. #903
    Trader Sascha's Avatar
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    Quote Originally Posted by Abu George View Post
    there is no doubt that the best results for the trading can be got by understanding the real ways for the trading by having good and effective approaches for the trading the volatility is one of these tools which can be very good at appointing the perfect tools to follow . and this may be very effective to find good points to trade from
    taking the volatility to trade as our opportunity to make huge money comes with huge risk as well. try to keep a safe trading habit without speculating to market and make high reward through volatility if it's not necessary. some traders likes to trade safely when market is moving sideways and willing to hold their trades for next couple days after it's following the trend.

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  5. #904
    Trader Senorita's Avatar
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    This very volatility trade comes with fast movement in pips and this is the time traders can make so much profits and as well huge loss too. High news triggers this volatility so fast that it can drag a pair to cover large number of pips in a little time. Some pairs are known to be naturally volatile too that they can easily move huge in a very short time. We must however know this and try to understand the very large impact trading volatility means.

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  6. #905
    Trader Sascha's Avatar
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    Quote Originally Posted by Senorita View Post
    This very volatility trade comes with fast movement in pips and this is the time traders can make so much profits and as well huge loss too. High news triggers this volatility so fast that it can drag a pair to cover large number of pips in a little time. Some pairs are known to be naturally volatile too that they can easily move huge in a very short time. We must however know this and try to understand the very large impact trading volatility means.
    i always take my trades into market high volatility because i'm used to its characteristic and able to accept the fact between high risk and high reward. good thing for me i can prepare several plans to help me limit my loss in case my trading goes off from my plan. placing a stop loss is the best method i can do to help me stay safe while using the risk to trade with volatility.

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  7. #906
    Trader Toyen's Avatar
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    Quote Originally Posted by Sascha View Post
    taking the volatility to trade as our opportunity to make huge money comes with huge risk as well. try to keep a safe trading habit without speculating to market and make high reward through volatility if it's not necessary. some traders likes to trade safely when market is moving sideways and willing to hold their trades for next couple days after it's following the trend.
    That is what traders are thinking about the volatility of the market, they always thinking that they will maximise profits through that, but they are wrong. The volatile market does not mean that the market is moving smoothly. In some volatile market conditions, traders will enter a trade, and that trade would be closed in the next 2 minute, it would have hit the stop loss of the trader at that time. So, there is likewise danger in trading high volatile market.

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  8. #907
    Trader Sascha's Avatar
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    Quote Originally Posted by Toyen View Post
    That is what traders are thinking about the volatility of the market, they always thinking that they will maximise profits through that, but they are wrong. The volatile market does not mean that the market is moving smoothly. In some volatile market conditions, traders will enter a trade, and that trade would be closed in the next 2 minute, it would have hit the stop loss of the trader at that time. So, there is likewise danger in trading high volatile market.
    hopefully i'm not like other traders that only thinking about the volatility to bring me maximum profits because i'm fully aware of it and experience the reward by myself with market, especially when it's news time. i always avoid trading with no volatility or sideways because it's so boring to wait and see market moves for 10 pips in an hour. maybe it's considered a risky method in general way but i personally enjoy what i'm doing with high volatility.

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