Think Like A Trader Blog

Monday, 31 August 2015

Adapt your Trading as the Market Changes

Well, it’s the last day of August today and a bank holiday here in the UK, so no Ftse 100 trading for me today. The second half of August was extremely volatile, economic news and the devaluation of the Yuan sending the market into first a free fall and then a strong rally. For the Ftse 100, my volatility measure was 80 points before it all started and now it’s sitting at 178!

Bad news in the short term for long term investors – but the key for long term investors is…they look at long term results, not weekly and daily moves. For intraday traders? It makes no difference at all.

It can seem a little daunting when a market becomes very volatile, but in truth it is usually fairly easy times to trade, especially if the volatility is news based. Bad news and all of that volatility is going to drive the market down, good news and it’s likely to go on a Bullish surge.

If you’re risking say 1% of account per trade and on average your stop is 30 points when trading intraday on the Ftse 100, all you’re doing is increasing your stop size and profit targets to take into account volatility. So maybe your stop goes up to 50 or 60 points. Bigger numbers, sure, but your risk should still be 1%. Therefore a loss is still a normal loss and a win is still an average win. The difficulty only arises when people try to trade the exact same way that they always have. I know there will have been countless people who just stuck to their regular position size and took very nasty losses over the second half of August.
Trading is not a fixed rule set industry. You need to be willing to adapt and change your parameters along with the market. Just like a Formula One team would change tyres as the weather changes, so you should adapt your methods and tactics as the market changes.

Anyway, a bank holiday gives me the perfect opportunity to work on the Ftse 100 training programme, so I better get back to it!

I hope you have a great trading week!

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