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How to predict if a market will be volatile?
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How to predict if a market will be volatile?

  #1 (permalink)
Normal Wizard
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How to predict if a market will be volatile?

What are some things to look out for that indicate a day will have some big moves? I perform way better in fast markets

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  #2 (permalink)
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  #3 (permalink)
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TickedOff View Post
What are some things to look out for that indicate a day will have some big moves? I perform way better in fast markets

One indication I always am on the lookout for is how many resting orders are stacked on the DOM.

These 2 screenshots are for CL, for two different periods of the US session (i.e. one was taken many months ago, one recently). In one you can see that each level has a depth of between ~70 and ~140, whereas in the other they are between ~30 and ~60.

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Generally speaking a thicker market is less volatile, given volatility and liquidity resting on the DOM are inversely correlated.


Last edited by xplorer; July 29th, 2018 at 09:50 AM.
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Normal Wizard
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xplorer View Post
One indication I always am on the lookout for is how many resting orders are stacked on the DOM.

These 2 screenshots are for CL, for two different time periods. In one you can see that each level has a depth of between ~70 and ~140, whereas in the other they are between ~30 and ~60.

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Generally speaking a thicker market is less volatile, given volatility and liquidity resting on the DOM are inversely correlated.

Day is most volatile during US session then european then asian session I dont bother with the asian session

Understanding yourself is just as important as understanding markets.
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Market Wizard
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Quoting 
“As you can see, we’re experiencing rough air at the moment. But as a reminder, we can’t predict rough air,” said the Delta airline pilot ferrying me from St. Louis to Charleston (via Atlanta—always Atlanta), “so please keep your seatbelts on whenever you are seated.”

Source:
https://www.forbes.com/sites/timmaurer/2018/02/11/the-only-market-volatility-prediction-you-can-count-on/#7c226fa6c854

Devise strategies which are not based on prediction to perform.

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There is no way to tell day type ahead of time. The best you can do is operate in markets that are known for having a high degree of intra day volatility. Check out NQ YM NG GC. Stay away from ES CL and Bonds.

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Normal Wizard
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trendisyourfriend View Post

My goal is to break even or cash a small profit on quiet days is a practice test for me given one big day can outperform a week of quiet markets

Understanding yourself is just as important as understanding markets.
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TickedOff View Post
Day is most volatile during US session then european then asian session I dont bother with the asian session

Never said it was the Asian session

Those are two screenshots of US sessions.



EDIT: sorry I just realized I may have not conveyed it right in the first post. I will amend "for two different time periods" to something else.

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Market Wizard
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Think about the value of inside information and how uncertainty affects the value of that information and that might provide a clue as to why you perform better in fast markets. You can use the prior day to get an estimate for the current day range. As for larger then "normal" moves, new information or some sort of change or narrative will drive that more then anything.


TickedOff View Post
What are some things to look out for that indicate a day will have some big moves? I perform way better in fast markets


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Very high volatility periods tend to last for days or weeks and only change back to medium or low volatility on news releases that normalize the markets again. I remember when February of this year hit an extremely high volatility period we were in it for several weeks.

If the goal is to try to trade during high volatility periods only, then I recommend the following.

1. Quantify first what characteristics define high volatility, medium volatility, low volatility etc. This various per instrument, but as others have said the big easy to read signs are the thickness of the DOM and the speed of the tape.

2. Find a few days historically in the last year when the market changed from medium to high volatility.... Once it moved into high volatility how long did it stay there and what broke it finally. In the US what I have observed at least this year, is that news comes out that freaks everyone out and the market goes crazy for a few days or a week or two and unless new news to the contrary comes out.... the high volatility continues. There has been a lot more panic and fear this year than in the past. It used to be just an econ news release drove the volatility high for a few days and then things would calm down.

3. Once you can see the patterns historically of: News > High Volatility > Some event to slow it back down: In in connection with this you can define the average high volatility period once we move into it... Then you can find your proverbial sweet spot.


You will likely have to correlate news and historical data to paint this picture completely but once you have all the pieces I think you could predict this fairly easily for the future.


Best of Luck!

Ian

In the analytical world there is no such thing as art, there is only the science you know and the science you don't know. Characterizing the science you don't know as "art" is a fools game.
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