In the US markets, volatility has picked up dramatically. From about the beginning of the year to last week, volatility was contracting. I circled this area in blue. Many traders were complaining that it was hard to trade in the lowering volatility environment. And, it was!
Volatility Affects the Mind, Too
It really has been hard to make good trades–not impossible, of course, just difficult. If you have been around for a while, though, you know that volatility ebbs and flows. In fact, it’s up and down cycles are easier to monitor than price action. When in a period of declining volatility, the only thing you can do is be patient. This is hard for many traders. They get bored. They want action. They start forcing trades. All I can say about this is: Stop listening to your mind telling you it doesn’t like reality. Listen to what the market wants and be patient. Volatility will return and open up new and better opportunities. It always does.
Volatility Picks Up
And, it has! I circled this area in red
Increased volatility presents its own problems, of course. It often makes it more difficult to anticipate a good game plan for the following day, as price will easily run through levels that would typically hold during periods of average volatility. Price also tends to turn quickly going from up to down and vice versa. But that’s OK. We use the same Wyckoff principles and analysis to stay on the right side of the market and find trades.
Trading the Volatility Pick-up Today
Today, shortly after the US open, the market became oversold with a modest SOT in the waves. An aggressive buy set up just above the big round 1500 level at A. A more conservative trade with more confirmation that the trend had indeed turned set up at B. This is what I call the First Higher High trade, and it set up perfectly for a 7-9 point move over 30 minutes or so.
Be Mentally Flexible
When volatility picks up, we want to be aware of the increased price movement and stay mentally flexible so that opportunities that arise like today can be captured. On Tuesday, I will be starting a four-part series on the mental side of trading that is unlike what you have heard before — useful, practical, understandable and highly applicable. The second and last sessions, in particular, will be of help in changing volatility. I invite you to learn more here: Winning Trader Psychology
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