After one of the worst sell offs in history due to the Covid-19 virus we find ourselves as traders in a rather difficult situation. One that many new and experienced traders have never had to deal with. The question is as traders what do we do?
Trading the volatility
Times like this require traders to stick to there "guns" more then ever, due to the HUGE swings we are seeing intra-day. Pre pandemic we would on average see a 10 pt range every day on the E-Mini S&P 500, now this is an average and there are days where we would see 20+ point swings but these were rare. Now we are seeing 100 pt swings within an hour or two!
This extreme volatility is wrecking havoc on some traders accounts, the speed at which price is moving is almost unheard of and the constant news headlines moving markets, are just a few things that the current day trader has to contented with.
With these extreme moves it is important not to get lost in what is really going on. Focus on important support and resistance levels. If these levels aren't major you need to SKIP them. Taking trades off of insignificant levels is only going to do more damage then good. Keep an eye on the Close of yesterday, is there a gap up or down, has the gap be defended? Watch the High of yesterday/ Low of yesterday, is price above or below these levels. Many times these levels act as support & resistance, be sure to plot these levels everyday on your charts.
Throughout the day there could be many different short term trends, a good rule to follow is always trade inline with the daily chart. This is called time frame continuity, by doing so you will position your self to follow the over all trend. Don't try and catch every single move there will be numerous options for an entry, now is the time to wait for the perfect entry and strike!
Now is the perfect time to drop your position size, this will give you a chance to let your trades move a little more before getting stopped out. Due to the immense volatility there is a ton whipsaw like movement and this can lead to trades getting stopped out if your stop loss is to close. If your trading the ES think about dropping down to the MES, this is a cheaper alternative and can end up having the same results as trading the ES.
Example: if you normally trade the ES with a take profit of 5 points or $250.00 per contract you could drop down to the MES and instead trading one contract trade 2 contracts and now you have the flexibility to scale out of trades. Since the moves are much large you can make these work to your advantage and risk less money. Easily seeing 20-30 point moves within a few minutes.
Increasing Time Frame
Stop trying to micro manage the markets and give them room to move. You need to capture the overall trend stop trying to grab a few ticks or points. The whipsaws will reek havoc on your account. Step up to the 5 minute or 15 minute time frame. This will give you a better idea of what is happening. It is also recommended to have an hourly chart on display as well. The hourly and 15 minute charts will carry much more weight then a 1 minute or 1000 tick chart.
This will not only help with following the current trend it will also help prevent over trading. There are TONS of false signals out there at the moment and trading every single one will do more harm then good. Increases your time frame to help filter out some of these false signals.
Remember to always follow the overall trend and not get caught up in how fast price is moving. FOMO is the enemy!