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Best way to learn in a high volatile environment
Started:November 14th, 2016 (05:10 PM) by SoftSoap Views / Replies:935 / 35
Last Reply:November 16th, 2016 (09:21 PM) Attachments:2

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Best way to learn in a high volatile environment

Old November 14th, 2016, 05:10 PM   #1 (permalink)
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Best way to learn in a high volatile environment

I posted a similar question in my journal, but I wanted to get the input from a wider audience.

A bit of background
I'm a rookie trader, and I started fully live trading ~August (I took some trades starting May, but wasn't consistently trading until August). So this is the first time I've experienced this level of volatility in the markets.

Last Wednesday and Thursday were super volatile, sure, but they were mostly directional when it came to their volatility. What I mean by that is that they didn't chop around so much before moving where they wanted to go, their moves were just very aggressive.

Today and Friday have shown strong signs as to where market's going, but there is a lot of choppy volatility en-route to the destination. Surviving a trade long enough for it to become a winner seems harder to adapt to, than other market conditions.

The conundrum of a rookie trader learning in this environment

As a trader who prioritizes long-term growth as his current goal (improving as a trader) over short-term profits ($). What is the right course to take here to learn as best as possible, psychologically?

Right now the conundrum I'm faced with is as follows:
  • Do I limit flexibility in my trading style (max X trades per day) and slowly learn until the market conditions become more favorable for my trading style?
  • or do I allow flexibility and protect my account with a max % loss / day so that I can learn how to trade in this environment as fast as possible?
  • Somewhere in between?

Some questions that are running through my head debating what the right answer should be:
  • Should discipline be prioritized and a restriction for # of trades or # of trades per hour be set and followed? Will this mean that a trader won't be able to adapt quickly to these conditions? Is it ok to consciously take the 'slow learning' approach?
  • Should a trader take as many trades within their % loss limit until they can get the 'flow' of things? Is the risk of over trading not worth the potential of learning fast?
  • Will taking too many trades lead to bad habits in the mid and long-term that will be too difficult to overcome?
  • At what point should a trader say 'this is not where I can adapt fast enough, I will wait until I'm a better trader?'

Any advice would be extremely appreciated!


I'm tagging a couple of people who are a lot wiser than me (just because you are not in the list, does not mean I don't consider you to be wiser than me)
@Inletcap
@MacroNinja
@chipps1983
@tturner86
@bobwest
@Big Mike
@Popsicle
@Rory
@CenFlo
@GruttePier
@JohnS
@michaelleemoore
@ratfink
@xplorer
Sorry if you didn't want to be mentioned or we've never talked, but your posts have shown that you have your shit together and I'm interested in your opinion

PS- I'm specifically talking about my situation, but if there are other traders who are in a similar position feel free to bring up your experience.

Yesterday's excellence is today's standard and tomorrow's mediocrity

Last edited by SoftSoap; November 14th, 2016 at 05:16 PM.
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Old November 14th, 2016, 05:10 PM   #2 (permalink)
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Old November 14th, 2016, 06:04 PM   #3 (permalink)
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Hi @SoftSoap

Firstly, thanks for including me among many who are far more experienced at this than me. Does not feel like I belong in there


My question to you is, are you asking this because you saw the volatility over two days and you want to adapt?

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Old November 14th, 2016, 06:14 PM   #4 (permalink)
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Hi @SoftSoap
My question to you is, are you asking this because you saw the volatility over two days and you want to adapt?

Yes.

I was able to learn from my mistakes on election night, and adapted very successfully to the directional volatility we saw on Wednesday and Thursday last week. Truthfully though, I overtraded on election night and thus had a lot of points to refer to and analyze for proper learnings.

But with Friday and today, I feel like I haven't quite figured out how to adjust my trading style to fit the market. In a way that leaves me comfortable psychologically. I could triple my risks and today I would've done very well, but I don't know if that will lead me down the right path in the long-term or not. That sounds like a simple solution and it could just be a band-aid fix on a potentially problematic wound.

Also, on election night I was lucky that I ended positive, but I don't know if I should try the same approach of taking most trades that are giving me the signs I'm looking for, and then seeing which ones worked and which ones didn't.

I hope that makes sense.

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Old November 14th, 2016, 06:21 PM   #5 (permalink)
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Yes, it makes sense.

But your answer to my earlier question leads to another few questions:

Do you want to be able to adapt to any trading condition?


If so, do you think this should be a priority right now, given you started trading 3 months ago?


For example, what attracted you to trade what was arguably one of the most volatile sessions of the year?

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Old November 14th, 2016, 06:46 PM   #6 (permalink)
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Yes, it makes sense.

But your answer to my earlier question leads to another few questions:

Do you want to be able to adapt to any trading condition?

I think that if I want to be a successful trader long-term, I will need to adapt to every major trading condition.

This means low range days, trend days, extremely volatile and directional days, news days, and days like today and Friday, and others I've yet to experience.

One of my goals is to be a good enough trader that I can adapt to any market by utilizing the right methodology.


Quoting 
If so, do you think this should be a priority right now, given you started trading 3 months ago?

I do think that is a priority for me, although I might be overestimating my psychological improvements and maybe I need to focus more on that first. I don't know.

My thinking is that I'm going to have to adapt to this sooner or later, so why not sooner when I'm risking a small amount $-wise as 0.5% now will be much smaller than 0.5% 2 years from now?


Quoting 
For example, what attracted you to trade what was arguably one of the most volatile sessions of the year?

In my opinion high volatile environments like last week are where the market gives you the most potential to succeed big.
If you can learn to trade well under high volatile environments, you can grow your account very fast during these conditions. I grew my account last week more than I had done my entire trading career and I would be lying to you if I said that wasn't appealing.

My goals and thinking could be messed up, so if anybody thinks so feel free to say that. I've been wrong many times throughout my trading career and it wouldn't hurt me at all if I'm wrong this time as well

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Old November 14th, 2016, 07:07 PM   #7 (permalink)
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Some battles require a samurai sword, other battles require a Swiss Army knife.

How about expanding your weapons kit to address volatility?

For example options.

Options love volatility. Once VIX gets above 15 options traders are in heaven.

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Old November 14th, 2016, 07:17 PM   #8 (permalink)
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I think that if I want to be a successful trader long-term, I will need to adapt to every major trading condition.

This means low range days, trend days, extremely volatile and directional days, news days, and days like today and Friday, and others I've yet to experience.

One of my goals is to be a good enough trader that I can adapt to any market by utilizing the right methodology.

I know a few successful traders that recognize when the conditions are not right for them and they sit on the sidelines. Linda Raschke once wrote "Standing aside is a position".

The reason I bring this up is, I don't think you will find easily a day with extreme volatility, most days of the year. So how are you going to practice those scenarios when you have only a handful of those days?

Another very wise and experienced trader that frequents FIO says "there is only one day per day". By that he means that you can only experience a set amount of live trading situations every day, and tomorrow will be a new day. So my view is that it's difficult to adapt to an event that doesn't come often.



I do think that is a priority for me, although I might be overestimating my psychological improvements and maybe I need to focus more on that first. I don't know.

Understood. I personally still don't see how you can adapt your style to something that happens more rarely than the norm (see below).

My thinking is that I'm going to have to adapt to this sooner or later, so why not sooner when I'm risking a small amount $-wise as 0.5% now will be much smaller than 0.5% 2 years from now?

In my opinion high volatile environments like last week are where the market gives you the most potential to succeed big.
If you can learn to trade well under high volatile environments, you can grow your account very fast during these conditions. I grew my account last week more than I had done my entire trading career and I would be lying to you if I said that wasn't appealing.

My take is that to trade extreme volatility - by extreme volatility I mean events such as a US presidential election, Brexit and similar situations - you need to a) be a very experienced trader b) be well-funded and c) have very wide stops.

I heard horror stories of people who lost 6-figure sums in one or two trades and volatility-related events may have played a part in that.


My goals and thinking could be messed up, so if anybody thinks so feel free to say that. I've been wrong many times throughout my trading career and it wouldn't hurt me at all if I'm wrong this time as well


My thoughts above in bold.

That's my view of course. I'm sure other people are going to chip-in.

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Old November 14th, 2016, 08:15 PM   #9 (permalink)
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My thoughts above in bold.


My take is that to trade extreme volatility - by extreme volatility I mean events such as a US presidential election, Brexit and similar situations - you need


I have a surfer friend who likes to surf typhoons. He goes out there and surfs in the nastiest weather, meanwhile the police are threatening him from the shore with a megaphone. He also loves to go blasting down 11th Avenue in the middle of the night at 150 mph on a sportbike. I think it's kinda crazy.

I do not think events like the election are tradable. Fun to watch but...

You end up with a big story to tell but a small house. Like my surfer friend.



The way the pro volatlity traders do these binary events on the long side is to be set up well in advance with a table stakes volatility play such as a VIX 1x2 put on when VIX is under 15.

The stats show that 95% of these VIX spikes do not last longer than 3 days, so it usually becomes clear where you can play them to the downside. Fantastic vol crush trades. Provided, you do not play vol crush when the term structure is in backwardation. You wait until there is no backwardation.

The answer to questions about volatility is always the VX futures term structure. You need to be monitoring it closely if you want to understand volatility.


Last edited by suko; November 14th, 2016 at 08:22 PM.
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Old November 14th, 2016, 08:51 PM   #10 (permalink)
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SoftSoap View Post
I think that if I want to be a successful trader long-term, I will need to adapt to every major trading condition.

This means low range days, trend days, extremely volatile and directional days, news days, and days like today and Friday, and others I've yet to experience.

One of my goals is to be a good enough trader that I can adapt to any market by utilizing the right methodology.



I do think that is a priority for me, although I might be overestimating my psychological improvements and maybe I need to focus more on that first. I don't know.

My thinking is that I'm going to have to adapt to this sooner or later, so why not sooner when I'm risking a small amount $-wise as 0.5% now will be much smaller than 0.5% 2 years from now?



In my opinion high volatile environments like last week are where the market gives you the most potential to succeed big.
If you can learn to trade well under high volatile environments, you can grow your account very fast during these conditions. I grew my account last week more than I had done my entire trading career and I would be lying to you if I said that wasn't appealing.

My goals and thinking could be messed up, so if anybody thinks so feel free to say that. I've been wrong many times throughout my trading career and it wouldn't hurt me at all if I'm wrong this time as well

Volatility is just volatility, it provides more risk and more reward for the amount of time in the market, I would rather be practiced and fluent in trades that occur more often so I can trade those in bigger size than trying to master more rare events.

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