“Too Much Volatility!”

“Too Much Volatility!”

I hear it all the time now about all kinds of markets. Reality? It is what it is so deal with it. Volatility is not new. It comes and it goes, but you need a plan to deal with it at all times. For starters, and this is at the essence of risk management, how much will you bet on any one trade given your limited capital (we all have limited capital!) and given that market’s volatility? Don’t have answer? Don’t play the game!

3 thoughts on ““Too Much Volatility!”

  1. Michael,

    Fully agree that risk management (as aptly demonstrated in your book) and having a plan ready for all possible eventualities are essential in dealing with the vagaries of the Market.

    But gaps & high intra-day volatility in and around the planned point of entry of trade does make life really tough for the average trader. Specially in Stock Enchanges which do not support Market On Close orders (the NSE in India have stopped supporting such orders for unknown reasons)

  2. Severus,

    I know you probably would rather hear from Michael on this subject, but I’ll give my 2 cents. Unless you’re are trying to scalp, day trade, etc., periodic gaps in price shouldn’t bother you. If you trade as a trend follower, a 2-3% gap in price is nothing in the overall scheme of things. For example, take a look at Apple (AAPL). A trend follower would’ve taken a long entry in March/April (depending on entry/exit parameters), and could still be holding that position (Again, depending on parameters). If the stock jumped 2-3% from its previous closing price, who cares? It is is now at $240ish.

    The point is, if periodic price gaps are killing your account, maybe it’s time to take a look at your timeframe and/or position sizing to allow for this. Price gaps are a reality of trading, so instead of trying to fight it, you must adapt to it.

  3. Todd,

    Thanks for the update. I fully agree to what you have said and am currently in the process of trying to fine tune my trading system in trying to be better equipped to handle high volatility.

    While typing the above line Ed Seykota’s words came back – “Your problem is not the Math. No matter what kind of Maths you use, you will end up measuring volatility with your gut” 🙂

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