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.

1. With the trend
2. Range plays
3. 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.

Good Trading.

Rowan.

I remember when I first started trading I was fascinated by the idea of trading the ES.

For those that don’t know the ES is the US S&P 500 emini futures contract. It’s one of the most liquid and more popular contracts that people love to trade. I’ve heard it referred to as crack for traders.

However is it really the best option for new traders?

For whatever reason newcomers seem to be drawn to trading the ES.

Maybe it’s because it’s well know, easily accessible and it’s also easy to understand the fundamentals. There’s also a heap of “training” out there on how to trade it.

But in my opinion it’s those very reasons that make it a bad trade. All these things make it really competitive.

When I think about all the professional traders I know – none of them trade the ES.

The only exception is a few that spread the ES against another contract. But not one of them trade it outright.

So if the very best traders don’t trade it – why would a new trader want to?

So what should you be trading?

Well like anything it comes down to your personalty and style of trading.

I find that new trades are drawn to highly volatile, “exciting” products. Things like the ES or even straight forex.

The traders that I see making money trade the most unpopular, boring things they can find.

Bonds, Short Term Interest Rate (STIR) products like bank bills, random commodities. Things that are generally not going to be popular and even quite boring in many instances.

Why?

Well they’re simply a better trade.

Compare the ES to the ZN. The ZN is the 10-yr treasury note future.

While the ES zips back and forth and is really difficult to get a handle on. The ZN just grinds up and down. It ranges nicely. You can follow the other bond futures as leading indicators. You can really identify your entry points and get good fills. If you trade with the DOM it’s much easier to spot the big buyers and sellers.

It’s just a much better trade.

So if you’re struggling with your trading, don’t be afraid to look at a really unpopular products.

It might just help turn your trading around.

Many people have set times of the day when they trade.

For most it’s the open or close and many don’t like trading during the day.

For the most part that makes sense.

The open is when most of the larger traders (mutual funds, hedge funds etc) do their trading and as a result it’s usually when there’s the most volume.

This is often a good thing because you can get the most bang for your buck. ie. bigger moves.

However this might not always be best for everyone.

I like to consider the type of trader you are before blindly trading certain times of the day.

When I look at different trading personalities, they are usually broken down into those traders who like big breakout moves and those who like reversals or mean reverting types of trades.

If you’re looking for the bigger breakout moves then you should really be looking to trade the most on the open.

You will often get big moves happening right from the opening bell.

However if you like to look for reversals and things such as false breaks, you should be trading during the day as it might be more suitable to the types of trade you’re looking to take.

As I mentioned earlier, the big traders like to execute early.

If there’s no big traders around, when price breaks out of its range or breaks out of certain levels, it’s the big traders continuing to buy or sell that helps the move continue and follow thorough.

If the big guys aren’t there to begin with, it makes a large move a lot less likely.

Of course if the move is backed by something fundamental then of course it will likely follow through.

However it’s just a simple stop run – then be prepared for it to find it’s way back into the previous range.

So next time you start trading the open and you’re getting ready to take an early lunch – consider hanging around…

You might just find some good opportunities.

Good Trading.

RC.