The markets are still jumping all over the place with strong and fast moves up and down in the S&P 500 futures. This is translating into volatility in correlated markets. The markets will continue to smash about with a high degree of volatility all day long, but make sure you look to recognize good volatility and bad volatility. Good volatility generally creates solid trading opportunities and bad volatility does not.

Good volatility is driven by large volume and bad volatility is driven by orders just pulling and relatively small volume. Good volatility is driven by panic in the form of people dumping their positions, bad volatility is people just pulling orders to avoid getting hit, or market makers and HFT’s moving up and down with the lead market. At the moment we are getting mixes of both. Learn to identify it through experience or let some other indicator in your trading performance tell you when it’s time to pull back and be more selective, or take a break. If you have been making progress during a busy period and then your P&L starts to go sideways, it might be a good time for a break. Pick a stop either total P&L retrace, number of losers in a row, first loser after a good run, second loser, etc. Whatever signal you need, put it in your trading plan. Once you hit your signal be more selective and patient or stop trading, whatever you set out in your trading plan. Volatility might still be there, but the trend may have changed or markets are just going sideways, but with big ups and downs.

So be aware of good and bad volatility and adjust your trading as it changes.