Tuesday, August 9, 2011

Risks and rewards of extreme volatility

As expected, today was also an extremely volatile day and I was forced to trade on a 20K volume chart. So a lot of the entries were mid-bar and may not make complete sense on the 5m chart. Rather than omit the non-standard and experimental trades, I have included them all here in the hope that it will be more educational than distracting.

Let me briefly discuss the non-standard trades today. The long on b1 was a possible 1Rev near ema and led to a 3 point loss. The G entry above b43 and 44 are not my standard trade but I expected a 2 legged move up to possibly a new high of the day. The G2 at b51 did not trigger on the 5m but triggered on the volume chart. The price action was so volatile that the short on b54 and b59 were simply mistakes caused by bars printing too fast. The BO at b76 was after assurance of low probability of pullback after taking out hod. Most of these trades looked reasonable on the volume chart and that's the flip side of using a chart that reduces your risk, it usually also reduces the probability of success. When the bars are printing quickly on the volume chart, its hard to look back at the 5m chart to verify before making entires.

The biggest mistake was flattening my long position from b64 near the low of b67 instead of letting it take me out at b/e. This made me miss out on 40 points of the move up.

Technically speaking, I could probably just ignore the fact that bars are the size of a weekly move and trade them just like any other bar with 18 point stops and have my normal success rate, but its very hard for me at this point and I'd rather take a few more small losses to get a defined smaller risk and a chance to swing for a big move.

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