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Jeff Pierce
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I’m a swing trader of momentum stocks with a holding period of anywhere from a few hours to a few months. I run a number of screens to locate the strongest/weakest stocks out there, using technical analysis to determine my entries and exits. Trying to calculate the intrinsic value of stocks in... More
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  • Having A Trading Plan Neutralizes Market Volatility 0 comments
    Jun 17, 2012 8:50 PM | about stocks: VIXM, VIXX

    By @tradersmarts

    We never know what is going to happen. Twitter and StockTwits are abuzz with questions like "what will happen in Greece"and "how will markets react" regarding the Sunday Greek vote. Many people are under the impression that if they can just figure out what is going to happen then they can make prophet from this valuable insight.

    • Here is the 1st truth: We never knowwhat is going to happen.
    • Here is the 2nd truth: It doesn't matter what is going to happen

    What does matter is having a plan for what you are going to do if the market does different things.

    • What if the ES gaps down 20 points? What is your plan?
    • What if we gap up 20 points? What is your plan?
    • What if we open right where we closed? What is your plan?

    By preparing ahead of time for multiple scenarios we can put ourselves in a position to react when the time comes instead of thinking. That is the purpose of the TS #'s and Contract Notes. It is my own personal homework to prepare for the next trading session. Each night I determine what I am likely to do when various scenarios play out in different markets: The Range, Highest Odds, and Extreme in equity, oil, euro, and gold.

    Additionally, I have clear targets of where these markets likely want to go if they start moving as price very often wants to test into the Range, Highest Odds, and Extreme TraderSmarts Numbers.

    There is a lot of volatility now with all that is going on in the Euro zone. As futures traders we must embrace volatility because with that comes greater opportunity. The flip side is with that opportunity comes additional risk, or at least logic would suggest. I've actually found that when the ATR expands we are usually able to keep the same size stop as when volatility is low -we just get the opportunity for bigger runners.

    (click to enlarge)

    The other option is increasing your stop and decreasing your size so you are taking on the same risk as when volatility is low.

    Lastly as traders remember we don't have to trade. Nothing is forcing us to execute. If you don't have a clear read or if volatility is just too much for your comfort level then simply stand down until you feel more comfortable. The excess volatility will eventually subside and the market will return to a speed that you are comfortable with. Never forget this: You don't have to trade.

    As futures traders it shouldn't matter to us if the ES is at 15K or 10K as we can still capitalize on the same type of price rotations.

    While trading is about determining what is likely to happen, we never truly "know" what is going to happen. Our job is to determine what is likely to happen and then determine how much risk we are willing to put on to figure out if what we think is going to happen actually does happen. If the expected outcome is in proper proportion to the required risk then we take the trade.

    The key point of this is we never know. That is why my number # 1 rule is: Anything can happen at any time and probably will.

    By determining ahead of time important levels (TS #'s) and what is likely to happen if the market does different things (Contract Notes, Range, Highest Odds, and Extreme) we can be prepared for when these things actually do happen.

    When the markets open Sunday don't be scared, don't be fascinated by the drama (or lack thereof), and most importantly don't be lulled in to doing something stupid. Smartly analyze the important levels, have a plan for what you are going to do if different things take place, and if the volatility is too much just sit it out. The market will be here tomorrow. And as always, trade smart and trade well!

    If you want to check out the TS #'s and Contract Notes take our risk free 7-day trial with this unique dealthat Jeff and Dave are offering through Wall Street Daily Deals. This particular deal has never been offered to the public and ends on Jun 24th. I personally look forward to helping you increase the odds of trading successfully during these highly volatile times with TS Premium and TS Trades.

    (click to enlarge)

    Stocks: VIXM, VIXX
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