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How have these markets impacted your trading?

I get a lot of questions from traders and I answer the vast majority of them here in one fashion or another. Now it’s my turn to ask a question of my own.

How have you handled these markets? Or have they handled you?

I can imagine the sorts of things individual traders have been going through, but because I’ve been so involved through my work in the more institutional sides of things I haven’t been able to spend as much time talking with the retail set as otherwise might have been the case. So I’m asking you to help me out. In return, your comments may provide me with ways I can help you out.

So leave a comment to this post and tell me what impact the volatility has had on your trading, whether you’ve found techniques working better or worse, how you’ve adjusted your risk management, and anything like that. I don’t care if you’re a new trader or someone who’s been at it for a while. My desire is to see how the markets of the last year or so have effected the way you approach the markets – if they have at all.

By John

Author of The Essentials of Trading

6 replies on “How have these markets impacted your trading?”

John

With a volatile market lately, I have been sitting on my hands, writing and reading, surfing all over the Net for good reading materials, too.

I also devote the time to self-improvement in all facets of my trading.

I have been a stock investor for a few years now. I sold all my stocks around Sept 2007. Since then I have been trying to learn something about trading, that’s because I won’t keep investing in stocks in a bear market. I like to go with the primary trend, so essentially this means short selling, and because short selling implies borrowing in some form or another, I ended up considering trading techniques.

I have had a few good trades and a few bad ones, by and large breaking even. I have traded without a plan and without a system (I know, bad, bad). On some trades I completely forgot about stop loss placement and then I held on to the loser. Trying to learn something about forex I came across the Babypips site. Of course I found some of your posts there. I believe that’s the point where I decided that I didn’t know what I was doing and went on to buy your book.

I have tried to avoid the markets since the October lows. I am using this period of high volatility to try to work on my own trading plan.

Hi John

Because I use stats as my base for my trading, I have a rule that says if we see two consecutive days where the ATR is greater than mean +3, I close out positions and stand aside until either:

a) We have two consecutive days where the ATR returns to ‘mean to mean +1’ or
b) We see 45 trading days of the new expanded ATR

Right now I am sitting on my hands and enjoying my other activities while keeping an eye on the market.

John,

My trust in the financial media (TV or Newspapers) is completely non-existent today. Then, a rare few warned of the incoming debacle. If they went on TV, pure contempt was shown to them. Look here: http://andrewsullivan.theatlantic.com/the_daily_dish/2008/11/vindication.html

Instead, I have learned to solely rely on the charts. After reading David Einhorn’s book, I really don’t trust fundamentals, no matter the SEC approval. US has not had honest accounting for years and unlikely to start now.

Risk Management & Position Management really shine during these times. All the market wizards pointed to it as a common success factor. Then, as an experiment, opened a simulation futures account and traded EW signals of MTPredictor with 2% risk-management. During Mid-September to late-October, account up over 25%. That was enough proof for me to believe in the magic of position sizing. Now, it’s a matter of incorporating the strategy real-time.

Despite this, most of my money is on the sidelines. Multiple friends got burned badly trying to call a bottom.

John,

My preferred style of trading is to swing trade breakouts from bases but until recently few stocks have had decent bases so I’ve stayed on the sidelines. I spent the time studying new ideas and I developed a fully automated day trading system which has been performing well in this high-VIX environment. I have tried discretionary day trading in the past without enjoyment or success so trying new niches sounded like a good use of down time.

I’m not good at just sitting on my hands but call it “research” or “development” and I’m all for it.

This bear market has made trading difficult, but interesting. I generally don’t trade stocks too much because most of those funds are in retirement accounts. I imagine many people have lost a lot of money there. I have been on the sidelines for over a year. Since I can’t short stocks in a retirement account, I haven’t really been involved too much. I did try to catch a bounce recently, but got in too late and my stops all got hit resulting in a small loss. I’ll probably try again after the next big decline.

Fortunately, I was able to talk my dad into moving his money to the sidelines in March of this year. He had to call his broker (Fidelity) twice to get them to sell his investments. They, like most brokers, say just hold on for the long term, it’ll come back. That was before the sell off, he saved a fortune by getting out.

I trade commodities more often and the volatility there is great for day traders. I don’t always get trades in because I find it harder to identify trades on days the market is trading sideways and I identify down trends better than uptrends, but that is something that I’m working on.