Tuesday, January 28, 2014

VIP Market

It's a VIP market.  A Volatility Increases Predictability market.  During a bad trading market, back in early May 2013, I made this post about making hay when the sun shines.  It reminds me of the importance of knowing when to get greedy and when to relax and play small ball.

My foot was off the gas, at that time, because it was a poor trading market.  Now, with this increase in volatility, I am pushing the accelerator, because I am seeing more predictable intraday and overnight moves.  Volatility not only increases the speed of moves, but it also increases their predictability.  Patterns from the past repeat, because when you inject fear into the picture, the trading becomes less random.  Oddly enough, counter trend trading becomes more effective in a panicky market.  But risk management becomes more important because moves will go beyond where they normally do because of increased volatility.

For example, Intraday reversals like yesterday off deep oversold levels is one such pattern that only happens in a nervous market.  And you will only get those gut wrenching closing selloffs into the 4:15 PM ET futures close (Friday AND Monday) in a nervous market.

As for today, even with a bad AAPL earnings miss, the futures are up solidly.  Ahead of the FOMC tomorrow, expect a grind higher after making a mini panic low yesterday.

No comments: