How do we as traders learn how to dance with the market especially when high volatility comes into play? Everyone is talking about volatility and no wonder with the market swings of 500 points or 1000 points in a single day.
Volatility is measured in numerous ways.
* Beta is a volatility measure of a company/stock using the standard of the S&P 500 as the benchmark.
* Implied Volatility is the estimated future trading range of a security’s price, in a given market environment. Implied volatility is one of the components in option price fluctuation.
* Historical volatility measures past trading ranges of indices, or equities.
And the explanations, theories, mathematical formulas are available at every turn.
Let’s take a look at market volatility from a different angle. Volatility is rhythm, it can be wild and active or calm and rhythmic or anywhere in between. Volatility can change at a moment’s notice, and change back again (some consider this whipsaw).
Economic news can affect volatility (good or bad). Technical indicators can give you some indication of increase or decrease in volatility. The main point here is to listen and watch and notice when the rhythm of the market changes, It is then, you must dance differently with the market and adjust your trading rules.
If you only know how to waltz, then learn to trade that market rhythm and stay away from the rest. There is one very solid rule: NEVER try to lead when dancing with the market.
Market volatility is like a musical score, if we are not listening to the rhythm, we could miss a step or two in an ever-changing market.
Have you got rhythm?
Join Rob Roy at WealthBuildersHQ and learn the fine art of dancing with the market.