Since the beginning of the year Keystone traders have been met with increased volatility in the market. The Vix has gotten close to trading into the 30’s and this has caused many traders to get frustrated with their trading. This frustration is because many traders are not making the necessary adjustments to their trading strategies.
Usually the increased volatility is asscoiated with a down trending market. This is because bear markets generally lead to panic by investors. But like we have witnessed the last few days the upmoves can also be just as quick. These quick and almost unexpected moves can be great if you are on the right side but can also be destructive to your P/L if you don’t have a plan on how to handle it. I’m going to list and explain a few of the adjustments I am making to my trading to combat this trading environment.
Your first loss is your best loss. The second a trade starts doing what it’s not supposed to get out of the trade. Trust your experience and get out and reevaluate. I’ve experienced this first hand recently as many trades are not doing what they are supposed to in the first few minutes and I start thinking I should take a small loss, only to hesitate and I turn the trade into a much bigger loss.
Don’t be greedy. The first momentum move you get in your favor you need to be booking some of your trade for a profit. Not only does this lower your risk but it adds money to your account. These momentum moves are met with severe pullbacks and if you don’t take a piece off your going to be regretting it.
Patience is more important than ever. When the ranges of stocks are not that big its easier not to get hurt for a lack of patience. But in this environment it is paramount to wait for high probability setups. Just because a stock you may be looking at moves .25 in a certain direction does not mean you immediately get involved in a trade. Be patient and wait for the best setups because the payoffs on these setups will make your week. If you are being too aggressive you can get chopped up all day. If you are ending your day by saying to yourself, “How did I lose money shorting a stock that ended up being down 2 points on the day.” You are a victim of a lack of patience.
Don’t short the lows. This is something I have become accustomed too. The “buy the lows” program will wreck havoc on your P/L and confidence. How many times have you watched a stock break a level and make new lows only to have it whip in your face .40? The you get out only to watch it go in your favor a point. Look for consolidation patterns in down trending stocks or wait for the first pullback. If you see a stock break and light up you missed it and need to wait for a high probability setup to present itself.
Hope these adjustments that I have been working on help you in your trading and post any suggestions you may have in the comment section. Good Luck in your trading.
