March 2022 almost in the books. The markets were not as volatile as March 2020, but still a rollercoaster month in the markets where most traders outperformed. Now that the vol has dropped, march contracts expired and the roll over completed, markets have digested the war, interest rate changes, and a sort of calm or at least environment of lower vol is emerging. How are you adjusting? Are you still looking for big days? Are you bored? Are you getting in trouble more? Here are a few things to be aware of as the volatility changes.

  1. Are you still expecting big days? This is the root of most post volatility trading errors. We’ve gotten so used to big days, we aren’t happy to grind out the normal days. Some traders start to try and manufacture big days that aren’t there, trading big size, getting on moves that fail, and getting big losses as a result. Recognize that big days were due to our ability and the volatility. Now its time to get back to the grind and be happy with the grind and normal trading performance until the vol comes back.
  1. Are you overtrading? If you are still expecting big days, you are looking for trades all day long. If they are there, keep at it, but if like most of us, those trades have reduced in frequency and we need to get back to patient stalking the markets while waiting for our trades to show up. Keep an eye on your number of round turns compared to your performance. This is a measure of efficiency. Generally when vol slows, performance slows faster than total number of trades and round turns/total shares traded.
  1. Are you forcing trades? Similar to over trading, getting into trades that aren’t there and/or trying to run them too far. When vol drops so does the average size of our winners and losers. If you were having 100 tick winners when the market had a range of 1000 prices, you should be having 10 tick winners with the range at 100. Watch a measure of vol to help give you some sense as to what a reasonable winner should be. I watch average 5 and 10 day measures of average ranges. If you are looking for 50 tick winners in a day and the ATR is only 30, time to re-evaluate.
  1. Are you jumping on every trend and getting nowhere? There will be more fade type trades as markets tend to oscillate more now between 2 points rather than trend, always ask yourself is this market trending, or is it ranging? Don’t try and force trends that are not there.
  1. Smaller trades and smaller up days means smaller stops: As ranges drop, trends reduce, and overall performance is reduced, its time to tighten up stops too, and use more trailing stops. Don’t give trades extra space. Don’t move stops. Tight is right.
  1. Be happy with smaller results. I know a lot of big swingers struggle with this one. Be legitimately happy with reduced performance as vol drops. To help you adjust use some measure of efficiency to gauge your performance. Be happy with high efficiency. Don’t just aim for big numbers. Big numbers come and go based on market conditions. Or take a look back at how you were trading before the vol increase and compare. Are you trading as efficiently, as big size, as profitably? Probably one of my greatest sources of long term success has come from being very satisfied with well executed trades regardless of size (some might argue its what also holds me back ;-)) But in terms of emerging from high vol environments in a measured successful way, being happy with your results or measuring them in other ways other than P&L will keep you motivated, legitimately happy, and help you navigate the reduction in vol.
  1. Take a break: its been one hell of a start to the year. You deserve and often need a break. Get away. Ski season is almost over, go for a week or long weekend on the slopes. Sun is out in Dubai, Greece, Croatia, even Dublin! So get away and enjoy the break, recharge and get some sleep. Attacks on nuclear reactors at 2am and trading all hours of the day takes its toll. Your body needs the break so don’t be shy in getting away from the screens. However the most important reason to get way, is to recharge so you are physically and mentally prepared for the next round of whatever the markets is going to throw at us.

And like Denzel Washington told Will Smith, “it is at your moment of greatest success that the devil appears.” For us traders it is “Biggest losers follow biggest winners.” Put to good use those two pieces of life and trading wisdom and use the above list to make sure you dodge the big loser.

If anybody has any other items for this list, please share in the comments. Good luck at month end!!