Focus On Trading Tools To Determine Market Volatility


Simpler Trading Team

Mar 02nd 2022  .  3 min read

Are crazy markets the new normal?

The broader market is experiencing a high degree of volatility – and some traders are taking a time out before calling the next play. This is prudent because this market volatility is not the environment for traders to swing for the fences.

Setting goals and establishing strategies for trading that may not fit the “norm” – but lead to good return percentages – are critical to a trader’s long game.

Trading tools that measure market moves

The recent put-call ratio of the S&P 500 spiked incredibly high following a short squeeze. This paved the way for two days of decent price action. This was short-lived, however, when news of the Russia-Ukraine conflict caused the index to fall as much as 2.5%.

How are traders to play this unbalanced market with global conflict causing interference? Simpler traders utilize key tools that measure volume spread, volatility, and price action

Intraday charts help determine price action

Traders, even swing traders, need to learn how to read price action on the intraday charts.

Reading price action helps traders avoid entering a trade at the wrong time and exiting a trade at the wrong time. 

Imagine entering a trade at the lows, then getting short, followed by three days of a short squeeze moving against you. This trading scenario can be avoided by reading the charts.

Traders also should consider looking at the put-call ratio which helps traders to gauge the overall market mood. A put is a right to sell at a preset price while a call is a right to buy at a preset price. When traders are buying more puts than calls, a rise in bearish sentiment is at hand. If traders are buying more calls than puts, this would suggest a bull market ahead.

Simpler’s traders look at the put-call ratio on a five-minute chart to see which direction the put-call is moving.

Another factor Simple’s traders employ is the volume spread which measures asset volume up versus the volume down. A trending chart lets traders know if there is more selling occurring than buying – this can also signal a reversal.

Reading the ‘fear index’ 

The CBOE Volatility Index (VIX), also called the “fear index,” measures volatility and signals whether  volatility will rise or fall. The VIX measures expectations for volatility in the next 30 sessions, with put and call options activity factored into VIX calculations.

Simpler’s traders focus on market signals that allow them to establish control of their trading plans. Otherwise, they could find themselves riding the bench and sitting out the next market move.

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