Stan here. First of all, I wish you a Happy New Year!
Have you already planned New Year resolutions for 2018? If no, I’d advice you to add these to your list (of course, it’s a trader’s blog, so they are all about trading):
- Learn to trade in the low volatile environment;
- Master a mean-reversion strategy;
- Invest a certain time and money in trading cryptos.
The previous year was quite challenging for many traders since volatility for most liquid markets were declining. Well, not for cryptocurrencies, of course, which are the wholly different story. A one picture is worth thousand words, so take a look at the collage below:
You may observe that volatility was declining throughout the entire 2017 and this trend may not be over. That’s not bad by the way. Low volatility it good for position traders. Risk appetite is high for the wide spectrum of markets, and big money is in the game. It usually results in trending activity. So, if you are a position trader, that’s your time: make your play and enjoy the results.
But what if you are a short-term trader? There are several choices, which may help you keep above water in such circumstances. Here they are:
Learn to trade in low volatile environment
Consider placing smaller targets, or learn to keep your position a bit longer than usual. For example, if you a position day trader, you might think about transitioning to swing trading and increase the duration of your positions to 1 week and more.
Also, it is a time when risk management really make difference between success and failure. When big moves don’t happen frequently, you should be religious with your daily loss limits and stops. Cutting losses is essential, it is beyond any discussion: but when volatility is unusually low (and becomes lower), weak points of your risk management may affect the final performance very much.
In other words, adapt your execution plan or change your time frame!
Master a mean-reversion strategy
For a short-term trader, it might be the option. When breakouts don’t work very well, one may employ a mean-reversion strategy.
To make a long story short, every chart (every market) has either a trending and a rotational component. A rotational component takes over when volatility is small.
So, think about capturing false breakouts, for example.
However, mean-reversion strategies require a bit of volatility to work correctly. If there are no short-term traders beyond the action, whom do you intend to take money from?
Invest some time (and money) to trade cryptos
Volatility doesn’t disappear completely, it just transitions from one market to another.
Today, many short-term trader migrate to the crypto world. That’s a mess, but that’s what is happening right now. We can’t ignore such a massive migration. I anticipate the increasing interest for the cryptocurrencies in 2018. It might be a bubble, but who cares?
For a trader, there are no such words as “serious markets”, “right opportunities”. We are all opportunists here. So, it’s reasonable to invest some time (and money) to get closer to a place where volatility is.
Happy New Year and keep in touch! See you!