Avoiding Lower Probability Environments

Late last year I released a popular series of two articles which dealt with the topic of "Winning through Losing Better". You can see them here if you missed them: Part One, Part Two.

I was reminded this week of a comment from Part Two. Here's the relevant text from the article:

Search for market environments which cause you to underperform.

For example:

  • If you don't trade well in ranging environments then you may be better sticking to trending environments only. If your database of losing trades shows difficulty in a ranging environment, find the clues that can alert you to this type of environment, and then learn to stand aside as early as possible.

 

I've mentioned previously that one easy way to do this is to avoid holiday sessions (see here). While they may on occasion offer great opportunity, more often than not they will be lower liquidity, narrow range markets.

The same concept often applies to those sessions that precede potentially volatile and significant news events. Wednesday offered us one example. With the FOMC Statement being released at 1415 ET, most of the day leading up to that time will typically offer a more challenging environment. Again, like the holiday sessions there is no guarantee. Some days can move. But as a general concept these sessions are more often than not lower liquidity and lower than average range markets.

Options:

  • Anticipate a rangebound market and plan trading accordingly (for example, aiming to fade the failed moves at the edge of the range, or through reducing position sizes).
  • Anticipate a rangebound market and sim trade only, in order to improve skills within these more challenging environments.
  • Anticipate a rangebound market and stand aside, but monitor the session with the intention of trading if a directional move does occur.
  • Stand aside till the FOMC release with intention to only trade after the news event has occurred.  (Not a good option in my UTC+10 timezone!)
  • Take a day off. Enjoy life. (Or in my timezone… catch up on some well deserved sleep!)

 

You don't have to trade every day.

Identify the environments which cause you to underperform, and seek ways to either avoid them or to minimise risk if you do make the decision to trade.

And if one of the challenges for you is a narrow, rangebound market, then there are easy ways to identify some of the most-likely rangebound sessions. Avoid the holidays. And avoid the sessions preceding highly volatile and significant news events. (Naturally, if you excel in this type of environment then the reverse applies and you'll want to seek out these sessions!)

For info… I sim traded the session… and did quite poorly! 🙂

CL rangebound

ES rangebound

YM rangebound

NQ rangebound

Euro rangebound

Lance Beggs


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YourTradingCoach - Admin

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