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RV is statistical, historic
IV is probabilistic, the future
So, in trading terms, IV is usually overstated relative to RV and contains more or less "juice" that is based on sentiment. That's the premium that we like to harvest and it's what makes certain derivative products like UVXY, NUGT and especially JNUG so juicy.
I was going to say that if you wanted to really daytrade volatility, there are some daytraders who do very well just scalping those three. VWAP reversals or the like. It's an incredibly exciting trade. Especially when UVXY begins to move.
As you watch "Cancel Crash" just try to imagine what daytrading UVXY would be like on a day when VIX shoots to 150.
I just stopped in and did a quick read to get up to date.
Here's my initial thought (and I didn't put that much thought into it, so don't give it too much weight, either ):
If the original question has to do with the election day volatility (or something similar), which was insane, my suggestion is to not bother to try to figure out how to trade those days: just don't trade them.
Why?
- They are rare.
- Can you realistically say that anyone could have a good idea, in advance, of how they would turn out?
- Is it worth it to try? -- That is, there is big risk along with potential big reward. It would be great to triple, quadruple, or otherwise multiply your entire account balance. It would be not great to go to a zero balance, or negative, which is definitely possible with futures.
- If you can make money when the market is not in one of these events, why not do it then?
Obviously, there are other good ways to look at it all. Obviously, if you can trade these things well, you would make out, on those rare days when they happen. My only comment is, "So what?"
Just a quick thought, and not the only way to look at it, of course.
I appreciate the mention in this post and I'll share with you my $0.02
I'm glad you mentioned "Psychologically" early in your post as that is so much of what this profession is made up of and one thing we all have to deal with in our trading career.
I'd like to add here, I have no affiliation with the below two educators and only mention their courses as I took them and feel they were beneficial to me.
I personally reached a turning point earlier this year with the Dalton Market Profile training and immediately followed that with training / mentoring with Don Miller.
Prior to the above, I had reached a point where I was becoming profitable, but somewhat inconsistent and it was affecting me physiologically. Up one day, down the next (both mentally and financially), to the point that I considered quitting trading futures and/or quitting trading altogether. This was from frustration of not being consistent and I had no one to blame other than myself.
That led me to take Dalton's course as I knew there were things under the hood of the market that I didn't yet know and I also found out that Dalton was retiring and this would be his legacy course. The price was merely the price a decent winning trade and his reputation as an educator, as opposed to a snake oil salesman trying to sell a "system" and figured, what do I have to lose?
The takeaways from Dalton's course, other than learning to read and use the Market Profile were the things he would repeat to us, often on a daily basis (I'm paraphrasing, so the quotes may not be verbatim and my comments are in [ ]):
- Trading is about change. [Timeframe changes, news events, balance, excess and the like all facilitate change]
- NOT trading is better than OVER trading. [We all get the mindset that we have to trade to make $$, but there are times when the trades are not there and we chase the market]
- The best trades set up and come to you, there's no need to chase them. [I've personally gotten in to more trouble in the markets forcing a trade, feeling I had to get in there and trade.]
- Forget the "Why" is it happening and trade what's in front of you. [You've probably seen me state this on multiple occasions and I'm guilty of doing it myself early on in my trading. It's natural to want to know the "Why" as we're all curious creatures that feel the "Why" is important to our understanding of the movement of the market(s) when in reality it's mostly irrelevant. The # that came out, the news that came out, the rotations, imbalances, reversals, etc. They move the market, but often do not follow logic (especially in terms of a # coming out or news)]
Right after the Dalton training I went straight in to a week long course with Don Miller. If you're not familiar with him, you can check out his web site (PM me if needed). I've read his book and when the opportunity to train with him presented itself, I jumped at it. It was basically watching over his shoulder on how he's been successful in his trading career and how to avoid certain mistakes.
My takeaways from Don's course were the following:
- Jellies (as in Jelly fish) survive in the ocean my moving with the ebb and flow of the tide. [The ocean is always dynamic and they survive not by fighting the currents, but by adapting to the ever changing conditions they are presented with in their environment]
- Markets are all globally interconnected and the overnight session can be a very profitable place to trade. [This differs greatly from Dalton as he wasn't a big proponent of trading the overnight]
- When the markets are going your way, step on the gas and go. [Mainly in the context of scaling in / out of a trade, ramping and then taking profits]
- As soon as you commit to a trade, be thinking of two things: Where's your exit and what's the other guy doing?
One thing they both emphasized is that trading is essentially a form of competition. As a trader, we are competing against other traders, machines, institutions and like. We are all seeking the same outcome, a winning trade.
In the end of the training as I started to put the knowledge I had gained to work, I realize that trading is about change, but for me as a trader it wasn't so much about me changing as it was about me evolving as trader.
I do hope my rather lengthy reply helps and I wish you the best in your trading.
You miss 100% of the shots you don't take. - Wayne Gretsky
Good Tom & Tony segment about what degree of volatility makes the market unscalpable, from a quantitative POV.
i.e., when the market move is greater than 1.5x the expected move or approx 1.5 SD it becomes unscalpable and you should back off.
When you describe them I think I was thinking about both, but specifically implied volatility.
I might've misunderstood but we traders remember the past, but we live in the future. So apart from analysis to develop hypothesis, aren't we traders always referring to IV?
Also I watched the documentary last night and I found it amazing. If anybody knows of any other similar documentaries / movies please let me know. I've searched for them on YouTube but I just get some 'documentary' about a guy on the beach that can teach me to make millions in between margaritas
The craziest thing about the movie is that as I was watching the documentary I got chills down my spine. Not because of the potential catastrophic event that could've potentially changed my future, but the potential with VIX so high.
I might have my screws on loose, but for some reason that drives me. Now, after this discussion I know that it's something I need to be very careful of, but my natural instinct does not involve fear.
A bit of a personal related story but when one of my friends told me that '90% of traders fail within their first year', I did not feel how you think most people would react. I wasn't scared, I didn't have any doubt, I was excited. All my mind kept thinking was if 90% of people fail, think of how well the 10% are doing. If you can become part of the 1% of the 10%, imagine the potential.
I'd like to think that I'm optimistic and I see any fear as an opportunity, but maybe I'm just crazy and haven't been beaten up by the markets enough
But hey, some wise guy once said you are smart if you learn from your mistakes but you are even smarter if you learn from other's mistakes. Some of you have shared your personal mistakes and I thank you for that, and believe me I do take everyone's advice seriously!
Cheers.
Yesterday's excellence is today's standard and tomorrow's mediocrity
Thanks Bob, another wise voice at FIO reinforcing the fact that it's best to be cautious during these events. I guess I just didn't realize how rare they really are. I honestly thought we would see this level of volatility until at least mid-December.
Today proved that this isn't the case
I will be sure to read this comment next time we can expect some high volatility because I feel like being successful ROI wise last week gave me a bigger confidence boost than I needed. I was overconfident when I started trading and did nothing but lose, so at least I know that being too confident is an easy way of losing money in the markets. I will definitely need a reminder next time we have high volatility so I can ground myself, I've bolded the part I specifically need to tell myself.
I've argued with myself that I was 'able to tell what was going to happen last week', but really I might've just struck a bit of luck. Time will tell, but I don't want to take bigger risks next time because I think I will know how they will turn out
Cheers!
Yesterday's excellence is today's standard and tomorrow's mediocrity
I'm adding this to my routine psychology prep, I don't have anything in there about over trading.
- The best trades set up and come to you, there's no need to chase them. [I've personally gotten in to more trouble in the markets forcing a trade, feeling I had to get in there and trade.]
Funny you mention this because you've said this to me on the ES thread on more than one occasion, it is actually the reason I tagged you in here
This one is a bit of a struggle for me. My philosophy has always been that if you can figure out why something is the way it is, you will understand it a lot better. So are you saying to only forget the 'why' during trading hours, and then figure it out later? or to drop it altogether?
What would you recommend as things to learn so that you can have a good idea of what 'the other guy' is doing? Wouldn't you need to know the 'why' to be able to do it properly?
Thank you for sharing your experience!
Yesterday's excellence is today's standard and tomorrow's mediocrity
As for implied volatility, I think that a lot of people do not realize that there is a difference between IV and RV. There is an understandable tendency to conflate the concepts, because of nomenclature. It's very confusing.
The volatility that is materializing in your charts as you trade /ES is RV not IV.
Somebody has been trying to create a tradable RV product, but I don't think they have succeeded yet.
There is an excellent PBS documentary on the 1929 Crash.
But I think the 1987 Crash is more relevant to what we are seeing nowadays with these V-shaped "flash crashes." 2010, 2015, Sept. 8, and now the 2016 election. Technology driven.
I think you want to aim to be one of the 1% still standing after five years. A big factor in this is not getting wiped out in these market events.
"There are old pilots and bold pilots but no old, bold pilots."
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