Traders often have problems when the market's volatility changes. Traders who look for significant drives or trends will find their profits shrink as the markets become less volatile. These traders often use tighter stops which require larger wins to offset a lower winning percentage. Traders who look for more reversion plays or small chops will quickly find that the size they trade during low volatility markets isn't appropriate as the market becomes more volatile. As well, these traders may find that stop levels that were previously reasonable become prone to getting hit.
The lesson: There are opportunities in both high and low volatility markets but traders need to keep in mind the current volatility and recent ranges for their markets and be prepared to cut down size and even adapt trading style when the volatility changes.
Wednesday, February 27, 2013 12:58:00 PM