Welcome to this video very ver into you if Tom time trading and today
we're going to talk about high volatility trading strategies so let's begin with
the problem and then give you the solution so one of the problems with
volatility trading is that a lot of people will use this for scanning for
markets whether it's the stock market futures Forex whatever and they are
generally looking to scan for high volatility trading opportunities so they
are logic in that is well I want to trade a market that's really moving
right and makes sense there's a logic to that certain lame yeah we want a good
reward risk ratio we don't want to trade markets that are just consolidating and
moving sideways and so therefore sure it's it's fun to make trades in a market
that's really moving and your P&L goes up faster it's more profitable and make
more money faster than you can take that same money put it into another trade and
you can compound your money faster so that all makes sense except for one
little problem which actually turns out to be a big huge problem and that is
this volatility has cycles that's the bottom line the cycles move in many
different ways there are cycles that are trending and then non trending cycles
another type of cycle is the expansion and contraction cycle that's what we're
talking about today high volatility low volatility another one is randomness and
chaos that's a big one we'll talk about that someday another one is just your
swing highs and swing lows that's the most commonly known type of cycles but
today that type of cycle that I'm talking about is that the market moves
between high high volatility moves and low volatility moves one of the easiest
way to see that is with Bollinger Bands and so that's what I have on here today
so Bollinger Bands are very just easy to see markers of volatility and so here
you can see the cycles we're in a low volatility move here and then the
Bollinger Bands move away from each other this is what you really want to
see when you see the beginning of a new high volatility move where the upper
bolt we're moving up so yes the upper Bollinger Band moves up but you also
want to see the lower Bollinger Band move down and that is the key where
they're moving away from each other so it's actually that lower even though
we're going up the lower Bollinger Bands very important to look at that and make
sure that it's going down so that indicates that okay we're going into a
high volatility cycle and cycles are just time so that lasts about oh well
what that long I guess you could say and then we go into a low volatility cycle
again and where the market has a very low range so think of mullet ility is
the range of the market already so low volatility high volatility cycle low
volatility then guess what we get back into a high volatility cycle then after
that guess what from here to here we're back into a low volatility cycle then
from here to here high volatility cycle then from here to here we're back into a
low volatility cycle and you get the point and the average trend on markets
these days is 5 Barry waves that's my own unique way of counting waves and
this one goes 7 so it gets extended and that'd be a good place to start looking
for a reversal actually so you can see the cycles of the markets moving from
high volatility to low volatility so here's the mistake that a lot of trade
creators make is they will actually use a scanner thinking I want to get into a
market that's really moving and so they scan for high volatility mark
the problem with that is by the time the mathematical formula of the scanner gets
enough data to accumulate for a high-volatility move guess what it's too
late it's too late it's going to catch it probably around here maybe I'll use a
different color here to make this more clear let's see what color should we use
let's use well let's use magenta okay so it's going to catch it about here
because it takes some data to go through the mathematical equation of the scanner
before it can confirm that yeah we're any high-volatility move now well that's
the problem by the time it shows up on the scanner it's late and you are going
to be late to the party and you are about to enter into a low-volatility
cycle and then you wonder hey how come every time I get in to a high-volatility
market then the market goes into consolidation so you try it again and by
the time the scanner and its mathematical formula crunches it and
confirms it is up here and you get in you say good I'm in a high-volatility
market and then the market just turns sideways and then you start thinking oh
my broker's trading against me the market makers hates me they're watching
my individual account the specialists are you know watching just me and
trading against me and I know now it's just that evidently nobody's explained
to you the cycle of high volatility and low volatility markets so as usual what
you want to do is the opposite so you want to trade the low volatility cycle
you want to scan for the low volatility cycles why because now you've got just
the opposite just about the time that the mathematical formula of the scanner
says okay yes we're in a low volatility market guess what it takes time for it
to do that and it might come up somewhere in a
ballot it comes up about here and now you say okay cool
well great so now now is what I want to get in on you can do the several ways
you can do to break out of this high or you can by the way one of the biggest
questions is the direction of when you get into a low-volatility cycle
basically a sideways move whether it's a triangle or just a channel whatever big
question always is okay which way is this going to break out and there's two
answers to that number one you want to trade it in the direction of the trend
of the chart interval that you're trading but only early in a new trend
reason for that is the trend is a friend until the wet and you know the answer to
that the trend is your friend until the end and what does that really mean
that's instructional that's not just a cutesy quote to remember no that is
teaching you something if the trend is your friend until the end then at the
end it's what your enemy so the meaning of that slogan which is very critical to
understand is that you should only trade in the direction of the trend early in a
new trend so that is what that saying is really meaning so if we can catch this
then that's golden that's your first retrace and a new trend and you can take
it here in this breakout that's that's very good too and maybe even a little
bit better so then again you scan for the low volatility market and catch it
coming out scan for the low volatility market remember this has actually been a
low volatility this whole time so it's got enough time to calculate in the
mathematical equation same thing here and you want to get in early on this so
I would actually want to buy this low this low I don't personally wait for the
breakouts some people a lot of people wait for the breakouts and well that's
cool that's an old-fashioned traditional way of doing it but you're giving up a
lot of your reward first of all your risk is greater because in these
examples getting kind of messy here with all my
drawing but basically if you wait for it to break out of here you've already
given up all this and I would have gotten in above the high of this bar
here so my risk is much smaller as opposed to the risk of about that and
then not only does it make your risk bigger but then of course it diminishes
your reward as well as opposed to that reward that's just through half cycle
obviously so risk reward ratio on breakout trades not nearly as good
prefer to get in inside of the contraction and that's the key biting it
inside of the contraction so that is one part of it the other part as far as
direction to trade is only trade in the direction of the dominant energy of the
longer term timeframe so that is the second answer as to how to determine
which direction to take these consolidation trades and you put all
that together early in a new trend on the setup chart in the dominant
direction of the longer-term chart and trade inside the consolidation so your
reward risk ratio is better also you're getting in before the retailer's so
you're getting getting at the same time as the professionals retailers always
wait for too much confirmation if you wait for too much confirmation you're
lead to the party and that's the problem because they don't have the confidence
the skill or the knowledge on how to get in inside
the consolidation so if you'd like more information on how to treat inside a
consolidation I have another youtube video on that on triangles can either
just search in YouTube for it or send me an email and I'll be happy to direct you
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