How to handle volatility.

Wednesday, December 3rd, 2008 - Noon (EST).

How to handle volatility.

Sometimes it's hard to believe that with all of this volatility,  the markets (DOW) main trend is still pointed down. The rallies and volatility that we're seeing are all meant to confuse you.

The fact is, Monday's downward move in the DOW was the fifth largest move in history. The two day rally (Tuesday and Wednesday) are counter trend moves. If we see the Dow close at its open or even close lower for the day, I suspect that the high or today's rally will be the high for just the moment. We will see pressure on both Thursday and Friday.

A close below 8000 will be devastating for the bulls and will indicate a further move down and a retest of the lows that we saw earlier in the week (around the 7600 level basis the DOW).

Readers of this blog know that we are still negative using MarketClub's "Trade Triangle" technology. I expect to see this market remain on the defensive for the balance of the year. So here's what we're looking for... if the market closes lower on the day, or if it closes at or near to its opening range (which was 8,409), then I expect that today's high will in fact be the counter trend rally high for the week.

These are incredibly volatile times in the marketplace. We are seeing swings on a daily and hourly basis that would normally take six week or six month to play out.

The key concept to a winning strategy in times like these is to have a game plan and to stick with it because overall it will bring you out on top.

Every success in trading and in life,

Adam Hewison
President, INO.com
Co-creator, Marketclub

7 thoughts on “How to handle volatility.

  1. "Sean" asks about stops, and I too sometimes struggle with stops on my forex trades. In reading the answer from the MarketClub team, does the 3 candle rule move along with subsequent price action? For instance, if a green daily triangle on forex issues today, and I examine the lowest low for the past 3 candles for stop placement; and suppose that this "green' trade continues for another 8 or 9 days, on said 8th or 9th day, in terms of stop placement, would I look to the lowest low of the immediate previous 3 candles, OR do I always look to the original 3 candles prior to the day the triangle first issued? Thanks for any suggestions!

    ---

    B. McGee,

    The 3 candle run does move along with the subsequent price action. Let's say that we are looking at the chart below (USD/JPY). If today's price action (bar of 12-5-08) reaches the highest high of the last three periods (12-4-08, 12-3-08, 12-2-08) then the odds are very high that a green "Trade Triangle" will be issues suggested a reversal. We take the more conservative approach letting the action turn around and show consistency before we trigger a signal. The 2 Bar approach is a technique that you can use, however you have to be cautions of large gaps between bars and or bars with extreme prices moves. When situations like this occur, you should possibly use another stop loss setting technique.

    Stop Loss Example - USD/JPY

    Give us a call if you have any other questions. I hope this helped.

    Best,

    The MarketClub Team
    support@ino.com
    1.800.538.7424

  2. There needs a complete AUDIT OF FINANCIAL SYSTEMS ALL OVER THE WORLD AND NEEDS A BODY LIKE NATO ALLIANCE VIZ. FINANCE AND BANKING WORLDOVER AND A VIGILANCE COMMITTE APPOINTED.

    TIME TO CRACK DOWN ON HOARDERS, BLACK MONEY, RACKETEERS, ROGUE TRADERS AS WELL AS FICTIOUS BANKERS.

    TIME TO ACT WITH FORCE TO REGAIN NORMALCY

  3. Rather than fresh game plans , we need to go back to fundamentals, analyze stocks which are really worth their money , balance sheets, debts specifically needs to be looked into as it is a mounting timebomb.

    Specific realestate stocks and banking stocks needs addl scrutiny and time to get WARREN WAY

    US FED and Indian Government and finance ministry needs to act swiftly as and when needed and it is going to be FED Vs DOW instead of BULLS Vs Bears
    and also OBAMA vs AGENDA

    TIME TO STRAIGHTEN OUR BELTS AND GET CRACKING

  4. Some of you have to BUCK-UP, Maybe this is not combat but getting close to it. When you have been hurt, You have to get more back bone and stay the course,keep to the plan and maybe you can get some Sleep,Stop the stress, its going to add a hellva lot more at the House if you dont.
    Your PLAN is in place, now stay ALERT and play this to the end. Yes we are going to get dinged a little,However the SUN will come-up in the Morning,so will you and when this is thru you will know that you did it RIGHT....

  5. your predictions are remarkable. I agree, the market will be going down because there was no double bottom in the 750 range.

  6. How would you recommend using stops with Trade Triangles? Reason I ask is because I bought the DXD on a pullback (a rally for the Dow) yesterday, then the Dow kept rallying and rallied today. It went through my stop.
    If the Dow's rally continues tomorrow, I won't regret having a stop in place. But this volatility is killing my trades

    ---

    Stops are definitely important given the volatile conditions of today's domestic and international economy. We do not suggest specific stop loss placements, nor do we place stop loss placement values onto the charts. Given that traders have many different objectives for their individual trading plans, we leave stop loss placements up to the discretion of the trader.

    However, since our “Trade Triangles” are used to enter and exit the markets, you can anticipate when the “exiting” triangle will be issued and therefore place your stop loss values accordingly. Our algorithm is based upon various weighted factors, however one of the most heavily weighted factors is the previous three period high or low. With this said, traders can identify the highest high, or lowest low of the previous three periods (daily, weekly or monthly) as a point where the odds are high that an opposing triangle will be issued, which would suggest to exit the position.

    We recommend that you always use stops, but that you use a method that will best fit your objective and your trading personality. There are many methods for setting stops. We have a few posts on our Trader’s Blog that discuss these various techniques <http://club.ino.com/trading/2008/03/avoiding-the-1-equity-evaporator/>. Also on our blog we’ve shared an audio and PDF workbook from one of our INO TV authors, Joe Ross on a seminar called, “Where Do I Place My Stops?” Feel free to access the PDF workbook and audio here: http://broadcast.ino.com/workshops/INLV07RO/workshop.pdf and http://broadcast.ino.com/workshops/INLV07RO/workshop.mp3 .

    Best,

    The MarketClub Team
    support@ino.com

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