There are plenty of traders out there that fear the volatility in the markets. They are scared of the huge market moves. They claim it is excessive volatility. Or perhaps they think the market has gone crazy. This happens with forex traders as well, even though they can go short and long just as easily. This tends to happen a lot with stock traders and investors. You hear all the sob stories of how people lost a bunch of money when the market collapsed.
You heard about the people who were stuck on the wrong side of the market, when commodity prices plunged in early May. All these commodity hedge funds lost a bunch of money, especially in crude oil.
You can go long. You can go short. You can make a killing on the way up, you can also sometimes make a bigger killing on the way down – if you are flexible enough to perceive it. If you have knowledge of order flow, market sentiment, market sensitivity, and positioning, then you are pretty good shape. If you ask the right trading questions, then you are in even better shape. If you have the order flow and liquidity on your side, then, well profiting becomes easy.
If, on the other hand, you cannot identify the sentiment and fundamental shifts in the market place, then I can understand why you would fear the trading volatility. Such people can only play the market as it goes one way. They can only perceive the order flow generators for one side of the market and profit, either by luck in riding the trend, or with skill in one group of order flow generators. But, for some reason, they struggle with knowing when to take profits, or when the trend can reverse or stall out.
I remember years ago where I would try to fade every breakout, or play the support and resistance levels in the market. I was always playing the market to come back to equilibrium – for the market to dip back into the range trade that it was in. Got very poor and mixed trading results. I was frustrated and didn’t know what was wrong.
Eventually, I ended up placing a trade where I let it ride for two to three weeks and it just kept on moving in my favor. I didn’t really have to do much in managing the trade. With the order flow, liquidity, and volatility on your side, the trade pretty much manages itself. I ended up with a huge trading return for that trade. It eventually hit me. It was far easier to trade with the future market momentum and let the trades ride when possible. It was far less stressful and much more profitable. Once you have one of those trades it can change your thinking a lot about the market.
Of course such trades don’t usually occur fifty times per month, but you should still look out for them.
Do not fear the volatility. Embrace it. Learn to live with it, learn to harness its potential. Some of the biggest trading returns and profits have occurred during periods of extraordinary market volatility. If every market out there was stuck in a tight range like USD/JPY, there would be a lot of people on Wall Street, as well as many traders, big and small, who would have far less money than they currently do.
Therefore, embrace the trading volatility. Learn to love it. It is the market’s perfect gift to you – if you know how to use it.
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