Volatility and Noise

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Hi ,

S&P 1.3% away from turning positive and we have 156% of return.

Ignore the noise

The year started off where 2019 finished and we were enjoying the longest bull run in history, until the pandemic hit the market.

That’s when everything changed.

We have seen the fastest turnaround from the ATHs to a bear market.

Dynamic Traders turned bullish within 2 weeks of the lows being set and have since enjoyed plenty of buying opportunities, especially in tech we were focussed for reasons mentioned on the weekly webinars.

The S&P and Dow have both been lagging the Nasdaq but are we about to see that change?

We have discussed over the last few weeks that financials and energy are two sectors that may spring into action after fading away during the lockdown. Now the economies are re-opening, travel and tourism is re-starting and many are back to work, we might see these areas of the market start to pick up.

Earnings will play a big part near term.

Tree shaking, noise, profit taking will all play a part during this period and this is where weak traders will lose their nerve and inevitably money. Ignore the noise and focus on price.

Formula:

  • Sell = Price breach of support
  • Buy = Price bounce from support

Use the right strategy for right market.

Two weeks ago I explained on the webinar that we are in a period where we want to look for bounces off support. Breakouts will be far less reliable at this stage due to noise. So watch for the right type of price action.

Don’t confuse noise and volatility.

Volatility levels are way down from where we were in March. They are still high compared to traditional levels over the last bull market but as we know, the market is not static, it is dynamic so we have to be as well and we must adapt to what is around us.

That is why one strategy to tackle the same market in this day and age is not a good strategy.

Understand what the market is telling us and tackle it appropriately. A stubborn one size fits all strategy will work…until it doesn’t.

Since we mentioned the market looked to have turned bullish back on April 7 2020, we have been long and the market has been very orderly. Some of the big dogs surprisingly joined late but they inevitably joined. The dumb money who are joining really late are joining at a not so smart a time when we have noise (not volatility) levels increasing but like clockwork, thats what they do.

VIX is down about 65% off its highs and up just 4.5% in the past week and very much in a minor range. However, noise is increasing and this is often the case during earnings.

So what is the Dynamic Trader playbook?

  • Many of us should already be positioned in the market with trades held from weeks to months and in good profit.
  • Don’t let profit disappear so skimming some off the top is fine.
  • Ignore the noise and wait for high probability opportunities using AT or FROM as the logic to enter.
  • Refrain from trading breakouts unless they are extremely appealing.
  • Standing aside is also a position but it will only be a good position for reasons that do not involve fear or poor market assessment.

Unlike many, I enjoyed the lockdown.

I know the lockdown period was very boring for those who are not used to spending so much time at home. We spend a lot of time at home so it was not too different from the norm for us, except for being told we had to stay in.

Other than two occasions where we went to the farm shop, we did stay in during that time. In fact we did almost 20 Level 3 webinars during the lockdown so for myself and Anne, time actually flew by.
Now that we are all going back to our daily routines, be it a little different to pre lockdown, the markets will start to have more dumb money activity. So, watch those volume levels.

Check Volume.

  • Volume will be a key component for decision making during these times.
  • Pullback on low volume might be opportunities to buy. Look for AT or FROM around these zones.
  • Like with the lockdown, enjoy the noise in the market. It tells us what is happening and why.

Lets go trade!