How to Trade in Market Volatility
The market has been very volatile these days. The Dow Jones closed down more than 820 points on October 10 and the Nasdaq and S&P closed red %3 and %4 respectively. October 10 was the worst day for tech since August 18, 2011 and everything except Apple (ticker: AAPL) seemed really weak. It’s all red. SQ fell almost 30%, after hitting $100 last week. Netflix fell more than 8%.
What do we do as day traders in a bear market?
Nothing special, we stick to our risk management rules and execute our well-known strategies. I ignore anyone who is showing huge gains trading volatility indexes. Yes, the markets are volatile now, but you do not have to trade wild. As a day trader, I am looking at a reasonable and consistent daily gain. I don’t get the fear of missing out on trading VIX funds. Yes, there is a lot of money to be made in this volatility, but of course a lot of money can be lost as well.
Know yourself. It’s very important. I myself am a stock market equity trader, and I trade only equities. I am not an index, ETF, sector, or bond trader. I am not an options or futures trader. I stick to my rules, and stay within my area of expertise. There is no shame or embarrassment in not trading complex and leveraged volatility funds. And do not get the fear of missing out. If you want to day trade for a living, you need to stick to your rules, and be consistent in EVERY market condition. I stop trading after making $1,000. I know I can make more, and the market is giving it to me, but I do not want to get into the habit of trading recklessly just because the market is volatile. I stick to my daily profit target and, once it is reached, I shut down my platform. That is how to day trade for a living.
All the best,
PS: Recently, one of our old traders emailed and shared his trading story with us. You can read part of his story and his lessons learned here shared in the forum here.
Trading Journey with Bear Bull Traders (then known as “Vancouver Traders”)
“It was around August 2017 when I found your book on Amazon with the title “How to Day Trade for a Living” which I thought exactly met my need. I immediately bought it and was impressed with the simple concise way the book was written and detailed about everything that needs to be performed step-by-step to become a Stock Trader. Currently, with the huge amount of options, with data available on Google, the beginners struggle a lot with what needs to be performed and are really confused if anything offered to them is genuine or not. The book written by you clarifies all of this confusion and gives a very clear head start for a beginner’s trading career.
After I read your book, I immediately joined the Bear Bull Traders (then Vancouver Traders) community in September 2017 and followed almost every small suggestion/guidance provided by you in the chatroom. I traded in SIM for 4 months and went live in Feb 2018. It’s been almost 9 months live (every trading day from 9:30 am to 12 pm EST) and looking at the past where I was down with more than $6k in losses around the mid of June 2018 and gradually coming back to break even in Aug 2018 and currently sitting at a net profit of $3.5k.The figures might not seem big as I have always been a very risk averse Trader and when I started I used to trade with a volume of 20-50 shares for high-priced stocks such as TSLA and 100-200 shares for mid-float stocks (I never traded low-float stocks, till date). Currently, I easily trade 500-750 shares/trade for mid-float and 200-300 shares/trade for high-priced stock. I think every trader has to pass through a learning curve and should respect the process. I have made my own mistakes and learnt from it. I am still learning every day and happy to be able to lead my passion. Hope to be successful one day and trade full-time.
Below are some of the items that I learnt during the process:
- You just need to master 1-2 strategies to be able to make consistent money. (I tried multiple different strategies (not just from the book) to create an edge and ended up with being more confused.)
- Volume sizing should be a privilege and should be increased gradually in 10-20% stages every time when you are confident enough. (At the time, when I started making consistent profits with small volume of 100-200 shares I immediately started trading with 500-600 shares at a time which led to a lot of emotions taking over leading to consistent losses.)
- Say NO to Averaging Down. (This type of trading saves you almost 90% of the time but would wipe out months of profit in a single day when it doesn’t work. Been there and learnt it the hard way.)
- Higher number of tickets DO NOT guarantee higher profits. (I have a rule to Stop trading once I achieve my profit target or my max loss or 30 tickets/day. Number of tickets/day have saved me rule has been very important for me to take selective trades. I remember my reckless/revenge trading having 223 tickets on one of the trading days which cost me hundreds of dollars in losses.)
- Rules are meant NOT to be broken. (Almost every single time I broke my rules I paid the price for it.)
- Being patient with the winners and impatient with the losers. (Almost every single trader faces that. I was very impatient with the winners and patient with losers which made my losses bigger than my profits.)
- Setting the stop loss right to either an indicator/support/resistance level. (Had a very bad habit of setting the stop loss at the level based on the loss I was willing to take.)
- Importance of Journaling. (My past chunk of trades gave me the indication that my win rate between 9:30 and 10 am is 76%, between 10 and 10:30 is a mere 24% and 10:30 to 11:30 is 64%. This was an eye-opener for me. I almost immediately stopped trading between the time where my win rate was the lowest. This really helped me in maximizing my profits.)
All of the above mentioned experience wouldn’t have been possible without your valuable guidance and mentorship. I hope to continue learning from you and find myself fortunate to be a part of an amazing trading community.
If you ever come to DC, it would be a privilege for me and my wife to host you.”