Volatility Avoidance

Yesterday I did a one and half hour webinar on volatility in trading and how to avoid volatility.

The key to profitability as swing trader is to understand the role of volatility and find strategies to reduce volatility of your trading . Volatility of stocks results in volatility of your results. As a result the equity curve has roller coaster ride.

The ups and downs in equity curve results in emotional up and down as a result trading becomes painful and frustrating exercise for many. Many give up after trying it for few months or years.

If you understand how volatility can be avoided then you can make lot of money while controlling risk. This is the essence of many well designed swing trading approaches.

My  How Avoid Volatility Webinar Notes

Investors make money by taking volatility risk. If you do buy and hold or any sort of long term holds then you are willing to live with volatility of that instrument. You get rewarded for taking that volatility risk. Investors use diversification, asset allocation strategies, hedging or other techniques to reduce volatility. But essentially unless you are willing to take volatility risk you are not going to have good returns and if you want higher returns you have to be willing to take higher volatility risks.

Asset classes like small caps, emerging markets , frontier markets,  and  commodities have higher returns but volatility is high. As a result the compound returns on them over period is low.

Obviously if you are a trader you are not like investors . Essence of being good trader is to make lots of money with smoothest possible equity curve. Which means your trading has to be organized around avoiding volatility.

To many it might look like impossible task but for hundreds of years the essence of swing trading has been to try and avoid or reduce volatility. All good swing trading setups have that as their underlying motivation.

How can you lower or avoid volatility: 

• select setups that are designed for volatility reduction
•  select stocks that will help avoid volatility (use momentum, efficiency ratio ,  persistence values, linearity, TI65 , Top 25 using different time frames) 
• select time frames that will allow lower volatility
• use entry techniques like OPG, LOO, BSLO , MOC, that can give you early entries.
• use exit techniques to lower volatility (trail, target stops, partial profits)
• select low volatility zones to trigger trades
• use lower time frames to time entries and exits
• market timing

These are some of the things which can help you avoid volatility. A conscious effort must be made to reduce volatility and well designed swing trading approaches do that. 

Make money with least amount of drawdowns possible. Avoid Volatility.