Trade The Journey

Trade The Journey

Volatility

I’m sure you have been on rollercoasters before, I sure have. There’s always a one-hour waiting line for the best rollercoasters. Most of the time the ride is worth the wait. Upon leaving the ride, how often do we think of the line?

We are most often than not, headed to the next ride. In search of new excitement since the experience we just had is no longer relevant. If we were to chart our emotions throughout the day, we’d see the graph rise steadily as we approach the ride, peak while we are on the ride and potentially fade depending on the strength of the experience we just had.

The markets operate in the same way, often taking us on a rollercoaster of emotion. I have experienced them more often than not as a novice trader. It’s often hard for me to separate the movements from my emotions. Volatility has different meanings for different people. For most, it can be thought of as the price fluctuations and the range of price fluctuation.

Well, thats what I understand it to be. For options, there is implied volatility, for stocks you can look at the historical volatility as a forecast and to make better investments you’d look a the market volatility.

I’d venture to say that during these times, the market is very volatile. Price movements are fluctuating widely and it doesn’t seem like it will stop anytime soon. So what can we do?

We could try to anticipate the market movements and place our bets with resources like stop and limit orders as protection. We could also wait on the sidelines for the volatility to end. Although the market may be volatile, one thing we could always rely on, are the numbers and data.

What is the data telling us? What are the real movements that are occurring beneath the volatility that will have long-range affects to the economy? My goal this year is to learn how to trade volatility.

Rollercoasters can somewhat resemble the volatile movements of markets. Learning how to remain calm on the rollercoaster is of prime importance.

Thoughts? Corrections? Lessons?

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