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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.

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    Quote Originally Posted by Yayami View Post
    more rewards and losses depends on how big we use the lot size and how many trades we open at the same time. beside, if the ratio between risk and reward is calculated and managed properly, we won't lose big and our account will remain safe. market with its volatility is good only when our strategies has something to give us in signals. otherwise if things not working according to the plan, we better rely to our risk management to save our account form losing more.
    Not just on the lot size also on the volatility because sometimes market makes steep moves of several hundred pips and even a trade of small lot can give big profit if taken correctly. Volatility can come due to many reasons like a breakout happening after a consolidated phase or some news etc. Every trade opened will depend on how far the trader has understood the market situation and how well he has managed his risk.

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    Registered user Sascha's Avatar
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    Quote Originally Posted by Abhishekwala View Post
    Not just on the lot size also on the volatility because sometimes market makes steep moves of several hundred pips and even a trade of small lot can give big profit if taken correctly. Volatility can come due to many reasons like a breakout happening after a consolidated phase or some news etc. Every trade opened will depend on how far the trader has understood the market situation and how well he has managed his risk.
    i won't call it a big profit if i'm trading with 0.01 lot size then hold it for 100 pips to receive only $10. if the accuracy and my strategy can give me the promise for such profitability, i won't hesitate to go in with half of my account to get multiple amount of profits. volatility in market, especially the ones that we can analyze accurately, must be taken seriously with big lot size because it's a sure trading with profits. otherwise if traders too fearful then they're going to use this great opportunity to trade normally.

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    In trading volatility, we need to realise that sometimes this could work contrary to our expectations, we need to be prepared for the worse, volatility is good only if we have control mechanisms to prevent this from going against what we thought should happen, volatility comes with some advantages and disadvantage, but if we really want to make money, we should apply only small lot, this is the secret that we need most of the time.

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    Registered user Azis Muslim's Avatar
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    Quote Originally Posted by Leonvic View Post
    In trading volatility, we need to realise that sometimes this could work contrary to our expectations, we need to be prepared for the worse, volatility is good only if we have control mechanisms to prevent this from going against what we thought should happen, volatility comes with some advantages and disadvantage, but if we really want to make money, we should apply only small lot, this is the secret that we need most of the time.
    Anything can happen in market and price may go according to our plan or in opposite sometimes. Expecting market volatility to give us the best movement to trade is one good idea to take for faster trading and less waiting for price to hit our take profit. Doing it on slower movement sometimes a little bit boring but then a good reward shall awaits us in the end of our trade which coming from patience and steady analysis.

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    Quote Originally Posted by Azis Muslim View Post
    Anything can happen in market and price may go according to our plan or in opposite sometimes. Expecting market volatility to give us the best movement to trade is one good idea to take for faster trading and less waiting for price to hit our take profit. Doing it on slower movement sometimes a little bit boring but then a good reward shall awaits us in the end of our trade which coming from patience and steady analysis.
    There are some traders who try to benefit from market volatility and there strategies are oriented for that purpose. Not all traders are looking for volatility, some are looking for long term trades that can give potentially huge pips. Actually intra day and scalpers are more concerned about market volatility while long term traders are more concerned about analysis and finding a sizable opportunity.

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    Registered user layigold's Avatar
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    Quote Originally Posted by AmitChallenger View Post
    There are some traders who try to benefit from market volatility and there strategies are oriented for that purpose. Not all traders are looking for volatility, some are looking for long term trades that can give potentially huge pips. Actually intra day and scalpers are more concerned about market volatility while long term traders are more concerned about analysis and finding a sizable opportunity.
    For traders to make money in forex trading , market must trend and that happens when market is very volatile. Sometimes, market may just be ranging or consolidating within some range and when that happens,a breakout is imminent and that can happen any point in time. There is need for much caution on the part of a trader so that he does not get trapped by following a false break.

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    Registered user Sascha's Avatar
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    Quote Originally Posted by layigold View Post
    For traders to make money in forex trading , market must trend and that happens when market is very volatile. Sometimes, market may just be ranging or consolidating within some range and when that happens,a breakout is imminent and that can happen any point in time. There is need for much caution on the part of a trader so that he does not get trapped by following a false break.
    volatility is the best moment for us to trade and earn maximum profits in short term. really suitable for traders like me who satisfied to trade with fast movements and big range from news or any technical factors. unfortunately at the same time this might be dangerous for traders who like to trade safely with low volatility and they prefer to stay away from market until it's cooling down to lower its range back to normal.

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    Registered user ola4real's Avatar
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    Quote Originally Posted by Sascha View Post
    volatility is the best moment for us to trade and earn maximum profits in short term. really suitable for traders like me who satisfied to trade with fast movements and big range from news or any technical factors. unfortunately at the same time this might be dangerous for traders who like to trade safely with low volatility and they prefer to stay away from market until it's cooling down to lower its range back to normal.
    You must have had your reasons to call the volatile times the best time to trade forex field, but I don't see things like that. Forex traders who are trading during the volatile time could only get their trading orders concluded so fast, not that the volatility will increase the chance of winning of traders. This is why I don't care about the volatility of forex field when I trade it.

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    Registered user Azis Muslim's Avatar
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    Quote Originally Posted by ola4real View Post
    You must have had your reasons to call the volatile times the best time to trade forex field, but I don't see things like that. Forex traders who are trading during the volatile time could only get their trading orders concluded so fast, not that the volatility will increase the chance of winning of traders. This is why I don't care about the volatility of forex field when I trade it.
    I also bit skeptical to this but then I can not deny the chance of trading with volatile movement because sometimes it gave me nice trading too. 80% of my whole trades are best to execute when market is moving averagely fast and not so sideways. When news comes and market is starting to move volatile, I am rushing myself to tighten my stop loss and take profit, or to move my stop loss to breakeven to secure my trades.

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    When you are trading the volatility you need to be careful with the market, because little mistake could give you a big loss in short period of time, so you need to be very cautious when you are trading the volatility market, make sure you review all you trades and be sure of it before you should make any decisions of trading in the market.

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