Wednesday, 5 May 2010

Volatility is Back!

The last 2 days shows the globality of the markets from a trading perspective.

So many of the moves are beginning during the European time zone. Traders are being challenged to meet the physical requirements of being able to profit from the beginning of a move. Being able to straddle the European and U.S. time zones has become a distinct advantage since the European Union created the Euro currency. The almost 400 million people who now live in the EuroZone has created a Yang to the U.S.'s Ying. It will be interesting to see what happens if/when Asia gets it's act together and becomes a real economic force. They will dwarf both the U.S. and the EuroZone if they get a real middle class with some purchasing power. In the mean time, we, as traders, need to address how to be able to reap the opportunities being given to us.

Typically, the best time to trade a futures market is in its opening hour or two, when the market is looking for balance and exploring and finding where value is. The other time there is opportunity is when the U.S. markets close -  that last 30 or 45 minutes when people trade who have to, either to create or close positions for specific reasons such as hedges, closing day trades and the likes.

On most days, initiating trades outside of those golden hours, results in lower profitability. Often, that first hour sets the high or low for the day. Traders who like that style of trading - putting on a position at a major support/resistance or break thereof and then scaling out. If you are an even shorter term trader, scalping the market, the golden hours provide higher volatility and momentum for you too.

In creating a scalping methodology, it is not uncommon to switch periodicity on your charts as the volatility changes during the day. The key being, to catch the move early while balancing the risk and the reward in a way that meets your trading plan's objectives. As I have said, using range bars makes money management easier as you can trade with a consistent size more readily. Switching to bars that have inconsistent lengths puts you in the position of having to recalculate your size to conform to the now variable risk per contract you are taking.  There are ways around this to a certain extent but this issue needs to be addressed.

One solution to these "dilemmas" is to become both a discretionary and automated trader, dividing your risk capital. This is one way to resolve the timezone issues as well as managing the risk from short term non range bar charting.

Today was really rock and roll. Between the Greeks showing their sadness at the austerity to come and the roumors about Spain, Euroland hit the Euro and the stock market. I could have traded light crude too. All in all, the order flow was fairly easy to follow as you can see from the setup reminders on the chart. If you look just after thr U.S. RTH open, you can see a very anxious buyershowing himself/themselves as a spike in the VB (14:54 London time). This was the start of the rally. The CCIs showed it all too.


  1. Almost every bar has a signal :) Which ones did you take and why?

  2. El,

    Is there any way to do a vote and see whether the dates you have chosen to do the course are the best.

    Can we do a vote on 3 dates from all blog readers:
    1. June 10 to June 30
    2. July 10 to July 30
    3. August 10 to August 30

    I am only asking cos July is not suitable for me and I would love to attend the live session rather than a recording. Ofcourse EL the above alternative dates are just my suggestion but please check your calendar and see what best suits you.


  3. EL,

    I am a long term follower of your fantastic blog here. However, I feel that the charts you have been posting recently completely lost their previous educational value. IMHO, the myriad auto-trigger signals drawn on the charts really do not help readers in understanding and learning your trading methodology.

    Would you pls. consider returning to your old style, where you only show the actual entries and exits taken along with your comments and reasoning in the body of your blog?


  4. Anon, Max, I'll do a post on this THURSDAY. I perhaps have not explained the Signal Markers too well.
    Markus, sorry that the dates don't suit. I'm have half of the people already paid for the date set down and another 25% or so who have reserved a spot. It looks like we will be full by the time I add the free place(s). I have had a lot of people wanting the recordings and I'll consider that once I see how they turn out. This was not designed as a money making business and I really don't want to go in that direction. On the other hand, if what we produce can help people get to CP and I can help my charities, I will.