My planned article is on hold, hopefully scheduled for next week. Horrific developments yesterday, with Russia invading Ukraine, have led to extremes of volatility. And a desire to share a different message.
One for new and developing traders.
One that you may not want to hear. But one that is necessary.
My desire is to see you survive the learning curve and to have a long and fruitful trading career. Mistakes today, could ruin that plan.
Let’s start with a post that I shared yesterday, as the market prepared to open with a massive gap-down and there was much speculation online as to how this would play out.
I’ve highlighted the part most relevant for today’s discussion.
Be honest with yourself.
Your number one priority is (and always will be) to survive to trade another day.
Sometimes that means stepping back to safety and using the day in other ways to learn, without risk exposure.
Let’s look at the markets yesterday, via the NQ futures.
There could have been absolute carnage had this driven lower, with panic fuelling further and further declines.
It wasn’t to be. This time.
But that doesn’t mean conditions were easy.
(Average figures are RTH only, as at the close of the prior day)
Incredible daily ranges. Incredible opportunity.
And incredible risk, if not played wisely.
So for developing traders… the ones who are still working towards either finding their edge or consistently applying their edge… I’m going to try to talk you out of trading these markets.
Thursday’s action is already gone. But I have a suspicion that there is more volatility to come. And even if I’m wrong and it’s all over for now, there will again be times in the future with extreme pace and volatility and this article can make a timely comeback.
Here is what I’m thinking:
Trading is never compulsory. At any time if you feel the conditions are beyond your current levels of skill and experience, then the RIGHT decision is to stand aside.
However this does not mean you close up shop for the day. There is still valuable work to be done in building experience and expanding your skill levels, so that when these conditions return again in the future you will be ready and able to thrive in the opportunity they present.
So here’s the plan:
- Put aside any feelings of FOMO. One day these will be your markets, but not today. Let it go.
- And use these sessions SOLELY as learning opportunities.
There are many options for learning:
- Do not trade at all. Simply follow the market attempting to stay in sync with the price flow. Build confidence in your ability to not only read the current trend but to also keep your mind ahead of the market, through projecting the current trend forward and identifying the most probable future path.
- Or SIM trade, if you feel you’ve already advanced beyond that first idea. Build skill in trading at these new levels of pace and volatility, without risking actual funds.
- Or maybe a combination of the two. Watch price live, but record data so that you can trade key sequences through post-session replay.
I’m sure you can come up with numerous other options.
The key point is…
Trading is optional. Learning is not.
Maybe I’m wrong. But I don’t think so. You know your own level of skill and experience and are big enough and old enough to make your own decisions. Perhaps you think you’ll be fine in these markets. All I ask is you consider the risk. Play these markets wrong, and let them put you into tilt where you start compounding bad decision after bad decision, and these sessions can destroy you.
We often know when we’re about to have one of these high volatility days. The gap overnight and the news leading into the session made it obvious that Thursday was going to be a highly emotional session. There is little to lose by choosing to stand aside. Choose to focus your live trading on more “normal” sessions. And use these higher volatility sessions as a learning opportunity.
It’s your choice though.
So having said that, let me add a few thoughts for those who do trade these sessions:
- Structure your trading so that individual trade risk and session risk still fit within their normal parameters. This will typically require reducing position sizes and widening stops, in order to cater for the greatly increased volatility. Some may also prefer reductions in chart timeframes, noting that this can create its own challenges through speeding up the whole process.
- Don’t get stuck in “prediction mode”. The market doesn’t care where you think it should be going. Even in a crash, the market can have massive rips higher, as this occurrence showed. Ensure that your game plan is visualised pre-session and you have clear guidelines for how to recognise the ACTUAL direction of the market and how to align with that direction, despite what you feel it should be doing.
- Recognise that the simpler opportunity is almost always going to be WITH the market direction, not against. If you’re a counter-trend trader, consider countering the pullbacks for continuation in the larger session-bias direction.
- Before placing any trade, KNOW WHERE YOU ARE WRONG. And do not hold beyond that point. Standard practice really, but especially important in these environments.
- And finally, most importantly of all, never forget that your number one aim each and every day is to SURVIVE TO TRADE ANOTHER DAY.
Take care out there,
PS. At the risk of repeating everything above, let me share a much older social media post: (Sign up for YTC social media here)