Is The Current Market Volatility Killing Your Stops?
By Cliff Clark
How was the market for you last month? If you look at the indexes you'd think the market was straight up. Pretty much it was, unless you were a day trader. We as day traders are not always experiencing the same markets that longer term buy and hold traders are experiencing. While the market has been straight up we have experienced intra-day volatility, especially in the first 30 minutes. Traders are taking trades in the first 5 to 10 minutes of the day and being stopped out almost instantly. So what's a trader to do?
Well you can't stop taking your stops. Stops are what keeps you in the game, you have to pick a line in the sand and live with it. If the current higher-volatility environment is causing many of your stops to be hit at a higher rate and you are wondering how to solve this issue, here are some thoughts on the matter.
The first thing you might do is review your trading plan and if possible, add some clauses that will allow you to use slightly different stop placement when you can objectively spot higher-volatility situations. Perhaps using wider stops will be a solution, even if it means trading with smaller positions.
Make a special point of trading only the highest-quality patterns during particularly volatile environments. I know that this should in fact be a rule no matter what environment we're in, but make it even more of a pressing point when those crazy times come along. A nice quality pattern might be less susceptible to the market volatility.
Identify when the volatility is the worst and try to avoid trading during those times. I started to avoid trading in the first 10 minutes of the day last month and it saved me from having many stop outs that I would have had otherwise.
Higher volatility shouldn't deter you from trading the markets, but you need to be able to identify when it's effecting your trading and learn to make the necessary adjustments. If you can learn to do that it'll save you countless hours of frustrated trading!
2 trades for me today with +1.5R total
1st Trade QCOM +2R
148.39/149.97 exit 143.25
12% gap down under pivot support and 50ma after a strong daily double top rejection,. I took it on a congestion breakdown with a fairly wide stop, leaving my 2R target 50c over its ATR, slow but consistent move down with great RW, hit my target on the penny before it bounced.
2nd Trade AQB -0.5R
9.40/9.70 exit 9.56
I rarely trade stocks under $10 and even more rarely short them. I liked this daily chart as it broke its uptrend channel and stayed under a strong 9.50 support line enough room to its daily 50ma. I entered after a pullback with a fairly wide stop but only 1/3 of its ATR used at the time. It failed to break down with the strong market open and stayed in a narrow range.
I actually broke my plan with this trade as I lowered my stop to a pivot where price made a big bounce earlier at 11am with a large seller sitting there. My thought was that if it breaks that level again then it will likely...
1 trade for (-1R)
I took a BD on QCOM. I was worried about the target being close to the daily range, so I took a tighter stop on the 2 min chart. I am looking through PTS right now, most of the examples have 2 options for where to put your stop. It looks to me like one of the stops would be at the bottom of the main consolidation area, and the other at the bottom of where there has been a shakeout or turnaround bar (if there has been one). Due to the daily range I took the tighter one on this. In hindsight it seems obvious to take the wider stop, but in the moment it looked ok.
I was then looking at the 15 min 3BP on QCOM, but the reason I used a tighter stop in the first place was because of the range. The 15 min 3BP would have needed to have gone even further than the wider stop on the 2 min BD, so I didn't take it.
