Traders Face ‘Season’ Of Stock Market Volatility

Traders take a sip of their morning beverage each day as the stock market opens and wonder, “Is there a better way to handle the gyrations of this erratic market?”

Recurring days of frustration watching market action on a computer screen can lead to restless nights. And then another strong dose of caffeine upon waking the next day.

How are the traders at Simpler Trading working through this uncertain market?

It’s all about the basics, and having a plan in place.

Season of volatility flips strategies

Traders often look at this market and don’t know which way is up… or down.

Simpler’s traders understand the frustration.

In this season of uncertainty, the team at Simpler Trading turns to targeted strategies. One of those is focusing on intraday opportunities – day trading.

This helps combat recurring, unexpected market shifts higher or lower that are fueled by outside influences such as inflation, Fed monetary tightening policy, or struggling economies.

Team members like Raghee Horner, Managing Director of Futures Trading at Simpler Trading, continue their focus on the S&P 500 (/ES) and shorter time frame stock charts. These include the 5-minute and daily time frames. There is nothing magical about these charts, but these help take advantage of short-term market movement.

Raghee uses these charts during her favorite day trading window – from 9:30 a.m. to 10:35 a.m. Eastern.

“I’m doing most of the ‘best’ day trading opportunities, seeing them and taking advantage of them through that 65-minute window,” said Raghee, a 30-year veteran trader.

“As long as we’re in this season of confusion surrounding the federal monetary policy, it’s going to make sense to focus on this,” Raghee said. “This is where it’s working best.”

The Federal Reserve (Fed) has strengthened its resolve the last two weeks toward its goal of lowering core inflation down to 2% annually (data shows core inflation at more than three times the Fed acceptable level). The Fed watches core inflation as the measure for how aggressively it continues raising benchmark interest rates.

The federal funds interest rate is in a range between 2.25% to 2.50% following four increases this year. The Fed meets Wednesday and has announced its intent to raise benchmark interest rates by another 75 basis points. 

As the Fed plows forward, Raghee uses a simple collection of chart indicators available on most computer trading platforms to navigate market volatility.

At any point, she doesn’t let knee-jerk market moves take her out of a pre-established trading plan. She sticks to signals that follow time and volatility in price movement.

This short period in the morning is covered with her proven strategy, set of tools, and an approach that keeps her focused.

“Even though I have a lot of other things I could be doing, I need to focus on this one thing,” Raghee said. “If the rest of the day is not presenting good risk/reward opportunities, why force the issue if we can get two or three winners by 10:30 a.m.?”

She plans to stay this course until the influence of Fed actions fade away in this season of uncertainty.

“If the longer term is concerning you or confusing you, think short-term,” Raghee said. “I know that I can trade in an hour-long window – start fresh, start flat tomorrow and do it all over again. There is a lot of freedom in that until we have a bigger, clearer picture ahead of us.”

Don’t bet with grandma or against stock market

No matter how the stock market is gyrating, Simpler’s traders always remember the market is an equal opportunity dream killer.

Doesn’t it always seem like when everyone is bullish, the market tends to go down? And when everyone is bearish, the market goes up?

This can happen even when the market logically “should” go the other way. 

Right now everyone and their grandma is betting the market crashes thanks to inflation, Fed monetary policy, and the threat of worldwide economic recession.

How can traders evaluate these “sky is falling” assessments? Here are some insights:

• Beware of betting the same way as everyone and their grandma (applies to pro and college sports as well)
• The market is always going to be right
• Never stop adapting to what the market gives

While all the media pundits and analysts are arguing about which way this market is headed, the market always delivers plenty of action intraday.

Just about everyone at Simpler Trading has adapted to this uncertain market by shifting to day trading, at least to some extent.

Why? Again, because there is enough intraday volatility to target daily gains without having to fuss with the macro economics stuff. Let the billionaires fret that level of evaluation.

John Carter, Founder of Simpler Trading, recently revealed a new strategy he developed for his teenage son to focus exclusively on “quick hit” day trades and not swing trades. 

Swing trades carry overnight and often for days or weeks. This year has been a recipe for pain in swing trading because moves have not continued for long in either direction for the most part.

The overnight risk is just too high, and Simpler’s traders (who trade their own capital) work to avoid risk.

In this current market environment, it makes sense not to fight the Fed or take large directional trades until a clear trend returns across the market.

That’s why John developed this new strategy to go where the more predictable action lies – intraday trades.

Catch this edge with ‘basic’ squeeze

At the foundation of most trade execution among Simpler’s traders is a simple chart indicator whether swing trading or day trading.

It’s been around a long time, it’s basic, and it’s the squeeze.

Danielle Shay, Vice President of Options at Simpler Trading, encourages traders struggling in this uncertain market to go back to the basics, or start there.

“Being a trader who works on identifying directional moves means that you absolutely need to have a specific method that you use to determine if or when a directional move could happen,” Danielle said.

She points out the risk in trading, i.e. there is no guarantee of 100% success in trading. On the contrary, all traders must accept losses and work to ensure gains overcome losses.

“Just because trading will never be 100 percent doesn’t mean you shouldn’t work to improve your edge every chance you get,” Danielle said.

Traders must work on their “edge” when navigating the stock market.

“The baseline of that edge has to be a setup,” Danielle said. “A setup is a signal that has been tried and tested, and you know it works more often than not, within a certain set of circumstances.”

Cue the venerable squeeze, a long-standing technical analysis stock chart indicator.

Danielle provided a free video to share her take on the squeeze:

For more on the squeeze, check out the Simpler Free Trading Room.