First we need to differentiate between the various types of volatility. In a “leading”or “swinging” market volatility is much welcome and a traders friend. Above all, if this volatility is present in a directional market. In a tight ranging consolidation market for example, volatility finds various borders. For instance if the range is congesting, hence building a triangle. A welcome scenario for a trader since a breakout possibility provides enhanced risk reward ratios. In addition a sideways range breakout is a welcome opportunity as well. A far less tradable environment is expansion into both directions (megaphone formation). You will find a more detailed description in this weekly chartbook. However, stay away from attempting to harness volatility, if volatility turns into a chop. Volatility solutions.
Silver found itself for two weeks now in volatile congestion period. We took low risk entries and exits to ensure positioning in case the trend should continue. As well as income producing market participation on very low risk.
We would like to share the underlying principles of how risk can be kept to such minimal levels.
1st. Take trades only in the direction of higher time frame market direction:
Silver in US Dollar, weekly chart as of October 16th 2019
The weekly chart above shows a steep, fifteen week in duration, uptrend. Followed by a healthy retracement.
2nd. Only take trades at extremes of the congested range:
Silver in US Dollar, daily chart as of October 16th 2019
Within the two week volatile sideways range in silver we had three long entries. These entries from the 8th, 15th and 16th were all posted live in our telegram channel.
3rd. No time for greed. Volatility solutions, aggressive financing is necessary to ensure risk elimination quickly:
Silver in US Dollar, 15 minute chart as of October 8th 2019
The fifteen minute chart above shows how quickly we took initial profits using our quad strategy. We eliminated risk this way on our long entry taken on the 8th of October.
4th. Volatility solutions, using the quad strategy with a twist:
Silver in US Dollar, 15 minute chart as of October 15th 2019
On the 15th of this month we again attempted a long entry at the lows of the daily trading range. We trailed the stop to breakeven only once the second exit had been reached.
Usually we move the stop to break even entry levels right after we finance our trade (=take half of our exposed capital out of the market). Increased volatility would take these stop levels more often than not out. This requests the stop being tightened when the next target is reached. Risk is still eliminated. If the original stop is taken out, we still have a breakeven trade after financing. That is to say more often even some profits. It is necessary so to give a trade a bit more “breathing room” in these more volatile times. In other words, retracements have a tendency to extend their typical reach.
Volatility more often than not provides a supportive environment to the market participant. However, this is only possible with a specific tool set on how to engage the markets. The high variability of market conditions and behavior requires a refined set of execution tools. Having a clear set of rules for any and all market environments is key to less stressful execution and long term financial success.
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