Retail Traders Tread Lightly Into Stock Market Volatility


Simpler Trading Team

5 min read

Retail traders are facing stock market volatility with sharp shifts in any direction, and Simpler’s traders are exercising caution through this rough patch.

The market continues to react erratically to impactful news events this week and next. This creates an uncertain environment for traders at all skill levels.

Bruce Marshall, Senior Director of Options and Income Trading at Simpler Trading, is a leader in the trading space who knows how to navigate a “messy” stock market. He doesn’t shy away from calling it like he sees it when the market is “garbage.”

Options with Henry Gambell
Futures with Raghee Horner

Treading lightly into stock market volatility

With all the stock market volatility, retail traders are facing difficult adjustments to trading plans with no clear market direction. All the news variables in play are fueling changing levels of uncertainty daily.

Variables include news events such as the Federal Reserve (Fed) speech today; unpredictable earnings reports from key companies; and anticipation of upcoming economic data releases.

On any given day, the stock market can spike higher or drop lower without any clear pattern prior to the move. As an example, the E-mini S&P 500 futures (/ES) that tracks the S&P 500 index, had swings of 50 to 80 points over the past two weeks.

The /ES was just above 4,200 11 days ago and dropped to 3,883 before bouncing back to 4,009 with the rally today. Along the way it blew through support and resistance levels with multiple gaps down and spikes higher.

Bruce pointed out that even after consecutive higher days, the /ES is still down from its high in January.

In the market today, the Dow closed at 31,774.52 points to gain .61% (adding 193.24 points on the day). The Nasdaq jumped to 11,862.13 points for a .60% gain while the S&P 500 rallied .66% to 4,006.18 points.

“This market continues to be tough to trade because there is no rhyme or reason to these pretty large moves up or down, or up and down in the same day,” said Bruce. “It’s been a crazy market to trade, but it’s about to probably step up another level.”

The market seemed to easily digest comments today from Fed Chairman Jerome Powell, but more news is ahead. More Fed speeches are scheduled this week and data releases are on tap next week with U.S. Consumer Price Index (CPI) on Tuesday and U.S. Producer Price Index (PPI) on Wednesday.

CPI measures consumer costs for high-value staples such as housing, gasoline, utilities, and food. PPI tracks wholesale cost changes – the price of goods sold by manufacturers.

The following week the Federal Open Market Committee (FOMC) meeting is set for Sept. 21-22. The Fed is holding strong to its plans to raise benchmark interest rates by 75 basis points.

While the market may be expecting the Fed rate hike, any higher rate announcement or any unexpected glitch in the CPI or PPI could send the market into the next spiral downward.

The trouble for retail traders is the uncertainty of the positive or negative news cycle ahead.

Avoiding big swings at trades in volatile market

A good check for traders on market sentiment is the Chicago Board Of Exchange (CBOE) Volatility Index (VIX) which is considered the “fear” index for retail traders.

The VIX was mellow today, dropping to 24.70, down about 4%. The index anticipates market volatility over the next 30 days and anything above 20 is considered high volatility.

The VIX can be seen as a gauge of how the market is reacting to news.

Going forward Bruce is staying the course for cautious trading and not getting caught on the wrong side of unexpected events.

“Realize this is not the market to step up to the plate and take big swings at trades,” Bruce said. “Be careful in this market with trade sizing. I’m trying to baby step this as much as I can until we get more clarity, and we won’t have that until after the Fed meeting.”

Despite all the chaos in the market this year, Bruce has managed to take advantage of opportunities along the way. His collection of trades this year in his BIAS program is up by 30%.

“We’re trading in this market, so you can definitely make money in this market, but it is a lot harder than normal,” Bruce said.

Market could see knee-jerk downside move

If it sounds like Bruce is still beating the same drum of insight as months ago, it’s because he is.

“We’re all trying to trade this mess, and I continue to call it a garbage market,” Bruce said. “When you have no pattern it makes it tough to trade.”

He expects that any negative news or unexpected data release in the next couple of weeks could cause an immediate downside knee-jerk reaction in the stock market.

Bruce pointed out that the broader moving averages on stock charts are still pointing to the downside. He plans to stay light in the number of trades he has in play or even settle in at flat.

“Be light. Be nimble. Be careful,” Bruce said. “Take profits when you get them.”

As a 30-year veteran trader, Bruce isn’t afraid to sit on his hands as needed while waiting for optimal trades on shorter time frames.

“When in doubt… don’t,” Bruce emphasized.

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