As you might have noticed the last few weeks have seen some real volatility creep back into the markets.
After what seemed like an eternity of equities slowly creeping along, we’ve finally started seeing a small sell-off. And with that we’ve seen some big intraday moves.
As a result, if you’re trading intraday you need to adjust your style.
I’ve always classified my trades into a few different categories.
- With the trend
- Range plays
- Event specific
Trend plays are exactly what they sound like. Going with the trend in the form of breakouts or tests of certain levels.
Range plays are mean-reverting type situations.
And then there are event specific, such as news trades or market-on-close plays.
When the trading environment changes so to should the type of trades you make.
Clearly in this environment, moves are going to be bigger. If a market breaks out of a certain level, especially to the downside, then I would consider that it is much more likely to be a legitimate move. Hence I’d be very willing to enter after the break or even better I’d be much more willing to enter in anticipation of a break.
Conversely if I was a range trader I’d be very hesitant in this environment. During the GFC I know traders who traded mainly in a mean reverting manner, that just stopped trading all together as the volatility was too much. That’s certainly good advice if you’re that type of trader. Wait until things settle down.
And finally if you trade things like news then you can expect that anything negative can really give you good value for money here. Now I’m not talking about economic data, more so random news that comes over the wires. In this environment people are on edge and anything newsworthy can get big moves and presents traders with excellent risk/reward opportunities.
So before you start your next trading day, be sure to think about the type of trades that you like and then how the current trading environment suits you.