Trading With Zero Volatility

Create Your Own

The last couple of days has been extremely painful in terms of trading. A surfer can identify. It’s like heading off to your favorite swell and the ocean is like a lake. What do you do? Well, a surfer packs up and heads home. A trader, however, has a tool at his disposal, which is able to create volatility. That’s right, I am talking about leverage.

Many traders and investors are terrified of leverage, and avoid it like the plague. However, if you are knowledgeable, and approach it correctly, it can be an excellent tool. A tool used to maximize profits, as well as to compensate for a lack of volatility. Honestly, there is no other alternative. If the market is not moving… you have no choice.

You either leverage your trades, or you don’t trade, it’s that simple. Trading with leverage is not like trading spot. You have to make use of stop-losses. If you are trading spot and the price action deviates away from your trade idea you can still hold out and wait for a correction. In other words, a failed trade can simply become a short-term hodl position.

You simply cannot do the same if you are in a leveraged position. For instance, if you are trading 20X leverage and the price moves against your trade idea by 5%… you are liquidated. Whatever capital was allocated to the trade is now lost, all of it! You can get away with poor risk management trading spot. However, leverage trading demands strict and excellent risk management.

Time Frames & Stops

If there is no volatility, the obvious choice is to trade lower time frames with very tight stops. A lower time frame also implies smaller moves, and subsequently, tighter stops. In other words, a trade is validated or invalidated with small incremental moves. Allowing too much room for a stop-loss can be dangerous.

Many scalp traders like to make use of moving averages and other indicators. However, I am more of a breakout trader so I tend to look for patterns. Obviously, I also refer to other indicators in order to validate my trade ideas. Support and resistance levels are also crucial.

I often try to walk away from a trade, once I’m in. I set my stop-loss and proceed to continue with other things. It all depends on the market environment, sometimes one has to remain close. It helps to remain unemotional when trading, and allowing the market to simply have its way with your trade idea is often the best idea.

The Beauty Of This Strategy

However, this is only really applicable to this particular strategy. When I am swing trading, I often tend to be quite involved, as I add to positions and exercise a number of other principles. Trading with higher leverage on low time frames is however completely different.

These are quick trades! You get in and you get out as quickly and “cleanly” as possible. If the market happens to experience a significant move, you are now very well positioned. Remember, this trade idea is designed to secure profit with minimal market movements. If volatility arrives in your favor, things become extremely profitable.

If the volatility is contrary to your trade then your stop-loss triggers, exactly as it would in any other market condition. Here lies the beauty of a stop-loss in a volatile market. Without a stop-loss, a trade can be liquidated in seconds if volatility arrives, and you find yourself on the wrong side of the market.

Final Thoughts

Swing trades can sometimes be rather drawn out. This type of trading can be rather exciting, and if your risk management is good, you should enjoy a relative amount of success. This is however not financial advice, and I would caution anyone from using leverage who is not familiar and knowledgeable regarding this practice. Thanks for the visit, see you next time… and hopefully, volatility is on the way!

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