It’s been a hell of a year…I mean 2022. 2023 has been start stop kind of year. Are you adapting to the changes in volatility?

The central banks are all slowing down their interest rate changes, the Ukraine war is no longer affecting markets, Covid is ancient history, US banks are stable-ish again, so nothing out there really shaking the markets. Taiwan and China are on the horizon, maybe. But there really isn’t much bearish news floating around out there right now. As such, vol is down, equities are marching higher. Most traders’ average daily P&L’s are also dropping right along with the vol. Have you noticed the changes in your own performance and adjusted to new paradigm? Good traders can feel it and naturally adjust, but sometimes we fight the drop in vol and performance, and try to make trades happen, keep our expectations high, and generally keep pretending it is 2022. If you haven’t adjusted, the next 5 pieces of advice are for you.

1.

Change your expectations. Lower your expectations. We all make coin when markets are good. We can easily be convinced that we’ve stepped up to a new level and discount the impact of vol on our P&Ls. If you aren’t making what you used to be, its ok. Sometimes the market gives money away, sometimes it doesn’t. Don’t be too hard on yourself, don’t force trades, and adjust your expectations to the new P&L levels. If you want to get better at some aspect, begin that process, but don’t beat yourself up for not performing to the same level as last year.

2.

Don’t force trades that aren’t on. Don’t chase P&L that isn’t there. Nothing worse to frustrate yourself and drive losses than chasing P&L levels from last year that are simply not there this year. You will most likely trade too big, hold trades too long, overtrade and dig yourself into a hole. Wait for what the market gives you, and you will subconsciously attack the good trades.

3.

Be patient and wait for your setup, and don’t get frustrated if they don’t come, they aren’t as big, or they aren’t as frequent. Vol is down but not out. Your trades will come. When they do, get to work but expect them not to be as big or as frequent as before.

4.

If you are already suffering losses not just lower performance, engage the classic defense: drop size, drop frequency of trades, drop riskier trades and focus on your most consistent bread and butter trades. And of course, put in tight, specific downside stops. If you keep having losers, keep dropping size so that the loss-making period is managed and as small as possible. Bad runs are tough, but you have to adjust so that it is only a bad run and not some more insidious.

5.

Stay positive. Everybody needs time to adjust to new markets. Not everybody adjusts at same speed. So, give yourself a break, dial down the pressure, stay positive, work on the above and your trading will go to where it needs to be. When the consistency comes back, and you’ve put in a few solid weeks or a month of grind, start bumping up size. In low volatility markets, sizing up on your best trades helps you step forward P&L wise, but only once you are consistent.

6.

Take a break. The last year or two or three have been a trader’s dream, but also extremely busy and stressful mixed in with COVID isolation and long hours. You owe yourself a break if you haven’t been taking them. Take a few weeks’ vacation now while the markets are slower where you won’t miss much. Recharge, refresh, and come back to the markets with new perspective, ready to activate the above advice that is relevant to you.

Low volatility is the norm. Adjust. Manage expectations, don’t force trades, be patient for your trades, manage your risk if you are struggling, and enjoy the process of being a market professional who knows how to make the changes to a different level of volatility. 

Get in touch if you want to work on any aspect of the above. My door is wide open.