Volatility and how to discover it for your market or instrument

Volatility and how to discover it for your market or instrument

In this session from the US futures trading webclass Anna explains how to understand your market through the prism of volatility.

00:01

Webinar introduction and disclaimer

00:01

The speaker welcomes everyone to the webinar, apologizes for a brief audio issue, and points out the disclaimer displayed on the screen. They emphasize that trading involves significant risks and advise viewers not to use money they cannot afford to lose. The introduction also acknowledges first-time attendees.

00:32

Volume price analysis overview

00:32

The segment explains volume price analysis, which examines the relationship between price action and trading volume to determine the authenticity of market moves. Genuine moves are confirmed by volume, while anomalies often indicate potential pullbacks or reversals. The speaker also mentions an accompanying book that provides worked examples of this methodology for better understanding.

01:08

Book and methodology applicability

01:08

The speaker discusses a boxed set available on Amazon, primarily for Kindle, which includes versions for different markets like forex, stocks, indices, and commodities. They emphasize that the specific ticker symbol is less important than the methodology, which can be applied across various markets and timeframes. The focus of the session is then introduced.

01:42

Focus on Forex and trading laws

01:42

The speaker introduces the topic of Forex trading and mentions that the discussion will cover some of Wyckoff’s trading laws, focusing particularly on the second law, the law of cause and effect. Before diving into this, the speaker plans to quickly review the current news, noting that the trading month is coming to an end.

02:17

Market correction and recent volatility

02:17

The speaker discusses the recent nervous state of the markets due to the virus, highlighting a significant correction that occurred as anticipated by analyzing slower timeframe charts. Using the VPA methodology and specific quantum indicators like the Camarillo indicator and Omni levels, they identified key resistance points that were tested twice before the market dropped sharply. Despite the correction, there are attempts to regain stability as the market experiences a shakeout, with sentiment influenced heavily by ongoing news.

03:19

Impact of virus on market volatility

03:19

The speaker discusses the impact of volatility on market behavior, emphasizing that current events around the virus are causing unusual and erratic market swings. For day traders, understanding and managing the specific volatility of the market or instrument they trade, such as forex, is crucial. The speaker also mentions that later they will explain how to identify volatility.

03:56

Understanding volatility in trading

03:56

The speaker explains two aspects of volatility, focusing first on the expected number of pips a currency pair might move during different times of a trading session or 24-hour cycle. They mention that understanding when a market moves the most is crucial and can be calculated, as taught in their Forex program. The speaker emphasizes gaining a feel for volatility through experience with specific markets or instruments. Additionally, knowing in advance the probable times of increased movement can improve trading decisions, especially when combined with their volatility indicators and methodology.

05:06

Upcoming market events and effects

05:06

The market is expected to be influenced by significant events, particularly fundamental news such as updates about the virus. A notable upcoming event is a large-cap rebalancing in the Russell 1000 index, which occurs annually and can drive substantial market activity. This event is anticipated to cause high trading volumes tomorrow. The speaker compares this to last week’s quadruple witching, which led to considerable volatility. Volatility here refers not only to market price movements but also to the impact on various traded instruments. Traders, especially day traders in stocks and indices, should be aware of this potentially volatile trading day.

06:11

Position sizing and risk management

06:11

The segment explains the concept of beta as a measure of stock volatility, where a beta above one indicates higher volatility and a beta below one indicates lower volatility. It discusses the trade-off between risk and reward when trading high-beta stocks, emphasizing the importance of managing position sizes and adjusting trade duration accordingly. Traders are advised to consider their emotional tolerance for volatility, possibly opting for lower-beta stocks if high volatility is too stressful. The segment concludes by introducing an upcoming discussion on index trading strategies in volatile markets.

07:50

Volatility indicators and strategies

07:50

The speaker explains the use of Volume Price Analysis (VPA) signals on the chart and introduces a dedicated volatility indicator that operates in real time. This indicator alerts traders when volatility has unexpectedly increased, often due to news events, signaling moves outside the Average True Range and advising caution. The segment concludes with a transition to David and a preview of the upcoming Forex discussion focusing on volatility, the second law of thermodynamics, and an analysis of the euro/CAD currency pair.

By Anna Coulling – creator of volume price analysis