With the VIX continuing to print unusually low levels investors and traders alike are challenged. Granted, many stocks continue to grind higher, however, finding good low risk entries is a challenge for many traders.

 

I am a contrarian trader, always looking for opportunities in oversold or overbought stocks and commodities, trading off patterns I like. To me hopping on a trend that is already well established is not the perfect trade, however, I also am very mindful that the majority of traders need to feel the comfort of the confirmed trade in order to feel comfortable.

 

The need to feel comfortable makes for poor trading decisions

 

This really is not rocket science: If you want to be a consistently successful trader you need to learn to be comfortable with feeling uncomfortable. Easier said than done, I know. There are so many factors to consider, which are clogging up the brain of the average trader, stopping them dead in their tracks, creating unnecessary anxiety and a compulsive need for yet more information.

 

Low volatility is just such a consideration. The lack of breathing space in the markets feels claustrophobic. Nobody likes to feel compressed and this is exactly what the markets are experiencing right now as they meander their way up to new highs after every little pull back.

 

You would have thought right now is an easy time to trade. The market has become so predictable and a blind man with a stick can pull the trigger, if they can count to 3 or 4, which is the average of the down days for the indices and many stocks. Ah, if only trading life was that predictable.

 

We are entering the thinly traded holiday period where complacency is high and when the cat is away the mice can play.

 

Personally I am very wary of this market right now

 

The placid behavior of most traders and investors has become the norm and when that is the case I get a tad nervous. in this environment it is advisable to tighten stops and trade smaller size. It is certainly not a time to be overly aggressive with new positions.

 

Protecting profits is always a wise trading strategy and you would be well advised to be defensive, taking only the very best trading set ups.

It is highly likely that we are going to see a swift move to the downside without warning. Timing this accurately is impossible at this moment in time. Thin trading makes for exaggerated moves, and beginning traders in particular should be extra careful.

 

Between now and the end of August it is an ideal time to look at the psychology of trading, your own psychology and that of the markets.

 

The two are one and the same. If you can master your psychology you will be able to master any market with greater ease. Being able to observe the markets without emotional attachment is a skill any serious trader and investor must learn. The next two months are a perfect opportunity to stand back a little and observe what goes on inside of your trading mind when you are watching the movements, or lack of them on your charts.

 

At some point volatility will increase. It will happen in a flash and it will happen when most traders are not looking. Such is the proverbial cloud of unknowing. We really only ever know two things: Our entry level and the stop. It is one of the paradoxes of (trading) life that once you are comfortable with this reality you will be able to read the markets much easier, as less emotion is involved. It takes a great deal of knowledge to know that you know very little. This is as true in trading as it is in life and has taken me a life time to appreciate.