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Scanning for High Volatility Trading Strategies: The Counterintuitive Way

To better know when to enter a trade, it is critical to study the strategies in volatility trading that would maximize your trade.

Volatility trading poses implications that can either make you money or lose that same opportunity. Due to the high risk associated with trading in volatile markets, traders should take into account the best strategies when trading in such markets.

To better predict contractions and consolidations in the market and when to enter and exit a trade, it is critical to study the strategies that would maximize your trade.

Was this video on Scanning for High Volatility Trading Strategies: The Counterintuitive Way helpful to you? Leave a message in the COMMENTS section at the bottom of this page. 

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Volatility Trading Strategies

Let’s begin with the problem and then give you the solution. One of the problems with volatility trading is that a lot of people will use this for scanning for markets, whether it’s the stock market, futures, forex, and they are generally looking to scan for high volatility trading opportunities. So their logic in that is, well, I want to trade a market that’s really moving, right? And it makes sense. There’s a logic to that. Certainly, we want a good reward to risk ratio. We don’t want to trade Markets that are just consolidating and moving sideways. Therefore, it’s fun to make a trades in a market that’s really moving and your P & L goes up faster. It’s more profitable and you make more money faster and then you can take that same money, put it into another trade, and you can compound your money faster.

That all makes sense except for one little problem which actually turns out to be a big, huge problem; that is, this volatility has cycles, that’s the bottom line. Cycles move in many different ways. There are cycles that are trending and then non-trending cycles. Another type of cycle is the expansion and contraction cycle, and that’s what we’re talking about today; high volatility, low volatility. Another one is randomness and chaos. That’s a big one. We’ll talk about that someday. Another one is just your swing highs and swing lows, that’s the most commonly known type of cycles. But today, that type of cycle that I’m talking about is that the market moves between high volatility moves and low volatility moves. One of the easiest way to see that is with Bollinger bands. And that’s what I have on here today.

Low Volatility Trading Strategy

Bollinger bands are very easy to see markers of volatility. Here you can see the cycles we’re in a low volatility move. And then the Bollinger bands move away from each. This is what you really want to see. So yes, the upper Bollinger band moves up, but you also want to see the lower Bollinger move down. That is the key where they’re moving away from each other. So, it’s actually that lower, even though we’re going up, the lower Bollinger band is very important to look at and make sure that’s going down. That indicates that we’re going into a high volatility cycle and cycles are just time, and then we go into a low volatility cycle again, and where the market has a very low range. So think of volatility as the range of the market.

So low volatility, high volatility cycle. Then guess what, we get back into a high volatility cycle. Then after that, guess what, from here to here, we’re back into a low volatility cycle. Then from here to here, high volatility cycle. Then from here to here, we’re back into a low volatility cycle and you get the point and the average trend on markets these days is five Barry waves. That’s my own unique way of counting waves and this one goes seven so it gets extended and that’d be a good place to start looking for a reversal actually. So you can see the cycles of the market’s moving from high volatility, low volatility. And here’s the mistake that a lot of traded recruiters make; they will actually use a scanner thinking I want to get into a market that’s really moving, so they scan for high volatility markets.

Quantitative Volatility Trading

The problem with that is by the time the mathematical formula of the scanner that gets enough data to accumulate for a high volatility move, guess what, it’s too late. It’s going to catch it probably around here. So it’s going to catch it here because it takes some data to go through the mathematical equation of the scanner before it can confirm that we’re in a high volatility move now. Well, that’s the problem. By the time it shows up on the scanner, it’s late and you’re going to be late for the party and you’re about to enter into a low volatility cycle and then you wonder, ‘how come every time I get into a high volatility market, the market goes into consolidation?’

So you try it again and by the time the scanner and its mathematical formula crunches it and confirms it is up here and you get in, you say good. I mean a high volatility market, and then the market just churns sideways and then you start thinking, the market makers hate me. They’re watching my individual account. The specialists are watching just me and trading against me. No, it’s just that evidently nobody’s explained to you the cycle of high volatility and low volatility markets. So as usual, what you want to do is the opposite. You want to trade the low volatility cycle, you want to scan for the low volatility cycles. Why? Because now you’ve got just the opposite, just about the time that the mathematical formula of the scanner says, OK. So we’re in a low volatility market.

Trend Trading Strategies

Guess what? It takes time for it to do that and it might come up somewhere in a balance. It comes up about here and now you say, well great. So now is when I want to get in on. You can do the several ways you can do the breakout of this high or you can – by the way, one of the biggest questions is the direction of when you get into a low volatility cycle, basically a sideways move, whether it’s a triangle or just a channel, the big question is always ‘which way is this going to break out’? And there are two answers to that. Number one, you want to trade it in the direction of the trend of the chart interval that you’re treating, but only early in a new trend.

The reason for that is the trend is your friend until the end. And what does that really mean? That’s instructional. No, that is teaching you something. If the trend is your friend until the end, then at the end, it’s what, your enemy. So the meaning of that slogan, which is very critical to understand, is that you should only trade in the direction of the trend early in a new trend. So that is what that saying really means. If we can catch this then that’s golden, that’s your first retrace in the new trend. And you can take it here, in this breakout. That’s very good too and maybe even a little bit better. So then again, you scan for the low volatility market in catch up, coming out, scan for the low volatility market. Remember, this has been a low volatility this whole time.

Technical Analysis

So it’s got enough time to calculate in the mathematical equation. Same thing here – and you want to get in early on this. Some people, a lot of people waited for the breakouts. And that’s an old-fashioned traditional way of doing it. But, you’re giving up a lot of your reward. First of all, your risk is greater because in these examples, if you wait for it to break out of here, you’ve already given up all this and I would have gotten in above the high of this bar here. So my risk is much smaller as opposed to the risk of about that. And then not only does it make your risk bigger, but then, of course, it diminishes your reward as well as opposed to that reward, that’s just through the half cycle obviously.

So risk-reward ratio on breakout trades not nearly as good, prefer to get inside of the contraction. And then that’s the key, buying it inside of the contraction. So that is one part of it. The other part is, as far as the direction to trade, only treated in the direction of the dominant energy of the longer term timeframe. So that is the second dancer as to how to determine which direction to take these consolidation trades. So your reward to risk ratio is better. Also, you’re getting in before the retailers, instead, at the same time as the professionals. Retailers always wait for too much confirmation and if you wait for too much confirmation, you’re late for the party and that’s the problem because they don’t have the confidence, the skill or the knowledge on how to get in inside the consolidation.

Volatility Trading

So if you’d like more information on how to trade inside a consolidation, I have another YouTube video on that, on triangles can either just searching YouTube for it or send me an email and I’ll be happy to direct you to that. So, if you liked this video, please understand that sure, it’s free. But if you got value from it, you actually have a moral obligation to pay it forward by clicking on that lovely little share button below. Believe me, the spiritual satisfaction you’ll get from that will be very rewarding and Karma will be kind to you.

In addition, if you’re watching this on YouTube, please click the thumbs up icon below and I love it when you leave comments; that really encourages me to continue to create these free tutorials for you. Finally, I am giving away one of my favorite trade strategies called the rubber band trade; it has s a very high win-loss ratio. I’m going to give it to absolutely free, comes in the form of a 26-minute video, and you can get that rubber band trade strategy by simply clicking on the image in the top right corner of this video or in the description below the video.

There’s a link there for it too, and if you happen to be watching this video somewhere other than on YouTube, there’s probably a link below or an opt-in form on the side anyway. Why don’t you do that? I’ll personally email the video to you with the rubber band trade strategy.

GET MY FREE MARKET ENTRY TIMING INDICATOR

BTW, if you’re interested in the indicator that I use personally for very precise entries and exits. I’m happy to share that with you. Just send me an email at support@topdogtrading.com, and I’ll show you how to get access to that indicator.

What did you think of this tutorial on Scanning for High Volatility Trading Strategies: The Counterintuitive Way? Enter your answer in the COMMENTS section at the bottom of this page.

PLEASE PAY IT FORWARD BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons.

FREE GIFT!

Also, I’m giving away one of my favorite trade strategies that works in trading the markets. Just fill out the yellow form at the top of the sidebar on the right. Once you do that, I’ll personally send you an email with the first video.

Those interested in Scanning for High Volatility Trading Strategies: The Counterintuitive Way that works in today’s markets also showed an interest in this video:
https://www.topdogtrading.com/swing-trading-strategies-stocks-mcclellan-summation-index/

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Day Trading,  Swing Highs and Lows,  Swing Trading Day Trading,  day trading strategies,  market cycles,  Swing Trading,  Volatility Trading

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