Q: I found the comments about extreme volatility in your latest newsletter very interesting. I knew about the high volatility link to bear markets from reading (although I don’t recall exactly where) and that is why I asked a question on your forum some years back about what kind of trading system works in bear markets. It was highly discussed, but as I recall no one challenged or answered my comments that trend following systems fail in bear markets.
Anyways, I was particularly interested in your comments about the best strategies to trade under those conditions. Do you have any more information on where you learned that information so I can do some further research on the topic? — Richard
A: The systems that work best in high volatility environments are day trading systems that capitalize on volatility and option methods that capture volatility.
Long term trend following (shorting) generally doesn’t work unless you are willing to tolerate huge drawdowns. — Van
