Tag Archives: Volatility

Archive, Retrospective

Sunday Retrospective for September 22

Posted on by Conor Browne

Lessons Learned and Strategy Refinements

• Reflection on the past week’s trading results, including both successes and areas for improvement.

• Analysis of the effectiveness of specific strategies, such as the “big ass fly” and out-of-the-money flies, in various market conditions.

• Discussion on the importance of process over outcomes, reinforcing the need for disciplined execution regardless of short-term results.

• Identification of recurring challenges, including managing trades in low-volatility environments and avoiding the temptation to overtrade.

• Emphasis on continuous learning and adjustment, with a focus on refining strategies based on observed market behavior and personal performance.

• Setting goals for the upcoming week, including specific areas of focus such as improving position sizing and better timing of trades.

Summary

the group took a step back to reflect on the trading activities of the past week. The discussion began with a review of both successful trades and areas where improvement is needed, with a particular focus on the performance of strategies like the “big ass fly” and out-of-the-money flies under different market conditions.

Ernie emphasized the importance of adhering to the principle of process over outcomes, stressing that disciplined execution should remain a priority even when short-term results are disappointing. The group also identified recurring challenges, such as managing trades effectively in low-volatility environments and resisting the urge to overtrade in search of gains.

The session highlighted the importance of continuous learning and strategy refinement, encouraging traders to adjust their approaches based on the lessons learned from the past week. Goals for the upcoming week were set, including a focus on improving position sizing and timing of trades, to better align with market conditions and personal trading objectives.

Archive

Daily Meeting for Friday September 20

Posted on by Conor Browne

Strategic Adjustments in a High-Risk, Low-Volatility Market

• Discussion on trading in an environment with low volatility (zombie land VIX) and how to adjust strategies accordingly.

• Emphasis on maintaining small trade sizes and avoiding overexposure due to the lack of clear market structure and high perceived risk.

• Explanation of the importance of capital preservation over profits, especially when market conditions are uncertain and edges are diminished.

• Introduction of the concept of expanding and contracting trading exposure based on market conditions, akin to adjusting driving speed in varying weather.

• Exploration of the potential benefits and risks of combining different trading strategies, such as the “big ass fly” with out-of-the-money flies, particularly in volatile conditions.

• Practical advice on using Thinkorswim’s analyze tab for portfolio management and understanding the impact of volatility on real-time profit curves.

Summary

Ernie provided guidance on navigating a market environment characterized by low volatility and the challenges it presents for traders. He emphasized the importance of small trade sizes and careful risk management due to the lack of clear structural elements and the high perceived risk at all-time highs. The discussion highlighted the need for capital preservation over profit-seeking, particularly in uncertain market conditions where trading edges are slim.

Ernie introduced the idea of expanding and contracting trading exposure based on market opportunities, comparing it to adjusting driving speed in varying weather conditions. He also explored the potential benefits and risks of combining different trading strategies, such as the “big ass fly” with out-of-the-money flies, especially during periods of high volatility.

The session concluded with practical advice on using Thinkorswim’s analyze tab to manage portfolios and understand how volatility affects real-time profit curves, reinforcing the importance of disciplined and informed trading in a challenging market environment.

Archive, Zoom Daily

Daily Meeting for Thursday September 19

Posted on by Conor Browne

Strategies for Trading at All-Time Highs and Managing Profit in a Stagnant Market

• Discussion on trading challenges at all-time highs, with a focus on how to handle stagnation and potential pullbacks.

• Introduction to the “big ass fly” strategy for taking advantage of accelerated premium decay, especially in low VIX environments.

• Exploration of the “gap and trap” concept, with a critical view on the validity of pattern names in trading.

• Practical advice on staging exit trades and managing profit-taking efficiently in rapidly changing market conditions.

• Encouragement to utilize the analyze tab in Thinkorswim to better understand trade positions, with a focus on reducing anxiety through thorough analysis.

• Casual conversation about personal hobbies and investments, reflecting on the importance of balancing work and personal life, including a discussion on the benefits of having a hobby like pool or car collecting.

Summary

the group focused on the complexities of trading at all-time market highs, particularly when the market shows little movement, making it difficult to gauge the direction. Ernie introduced the “big ass fly” strategy as a powerful tool for capitalizing on premium decay, particularly when the VIX is low. This strategy was highlighted as particularly effective on days when economic reports influence market behavior, creating an environment ripe for premium decay.

Ernie critiqued the use of pattern names like “gap and trap,” explaining that while they are often used to justify trading decisions, they lack the empirical backing necessary to be reliable. The discussion then moved to practical trading advice, including the importance of staging exit trades in Thinkorswim and using the analyze tab to manage trades effectively. Ernie encouraged participants to reduce their anxiety by thoroughly analyzing their positions and making informed decisions based on that analysis.

The meeting concluded with a more casual conversation, where participants shared their personal hobbies and investments, emphasizing the importance of having a balanced life outside of trading. Ernie also shared his plans for a new business venture, highlighting the value of pursuing passions alongside professional responsibilities.

Archive, Zoom Daily

Daily Meeting for Wednesday September 18

Posted on by Conor Browne

Navigating Fed Day Strategies and Maximizing Volatility

• Discussion on the significance of Fed Day and its impact on market volatility, particularly the anticipation of the FOMC’s rate cut decision.

• Explanation of the role of the Federal Reserve’s balance sheet in influencing the economy, with a focus on its symbolic versus actual power in monetary policy.

• Detailed exploration of trading strategies tailored for high volatility environments, such as the “big ass fly” and how implied volatility affects profit potential.

• Analysis of how to time trades effectively on Fed Day, including the advantages of making trades before and after key announcements.

• Emphasis on the importance of understanding market structure, implied volatility, and time decay to optimize trading outcomes.

• Practical advice on balancing risk and reward, with considerations for using tools like straddles, strangles, and Batman strategies during high-impact trading days.

Summary

the focus was on the unique trading opportunities presented by Fed Day, where the FOMC’s decision on interest rates creates significant market anticipation and volatility. Ernie explained the limited but symbolic power of the Federal Reserve in controlling the economy through interest rate adjustments, highlighting the greater impact of its balance sheet on the economy.

The session emphasized the importance of understanding how implied volatility, particularly on days like Fed Day, can influence trading strategies. Ernie discussed the “big ass fly” strategy and how its risk and reward profile changes in high versus low volatility environments. He stressed the value of placing trades before and after the Fed’s announcement to capitalize on volatility crush and market movements.

Participants were guided on the critical role of market structure, time decay, and volatility in trading, with Ernie offering insights into how to manage risk and optimize returns. The meeting also covered practical tips for using advanced strategies like straddles, strangles, and Batman setups to navigate the volatile conditions of Fed Day effectively.

Archive, Zoom Daily

Daily Meeting for Tuesday September 10

Posted on by Conor Browne

Managing Trade Execution and Strategic Use of Volume Profile

• Objective Entry Points: Ernie discussed the concept of objective entries using volume profile, where structural levels are marked by transitions from high to low volume, acting as support and resistance zones.

• Timing of Trades: Highlighted the importance of timing when entering trades, particularly during pullbacks to structural levels, to maximize the probability of successful outcomes.

• Volume Profile Techniques: Emphasized the use of vertical lines on charts to mark specific time frames for potential trades, aiding traders in visualizing entry points based on volume profile analysis.

• Market Behavior and Probabilities: Explained the probabilistic nature of market movements, reminding traders to accept the reality that approximately 50% of trades may go against expectations.

• Trade Discipline and Mental Toughness: Stressed the importance of maintaining discipline and mental toughness, especially when trades do not immediately go in the desired direction.

• Consistent Strategy Application: Encouraged traders to consistently apply their chosen market direction strategies, whether using a 14-day, 21-day, or 28-day moving average, to capture market trends effectively.

Summary

Ernie focused on the concept of objective entries in trading, using volume profile to identify key structural levels where the market transitions from high to low volume. He explained that these levels serve as critical support and resistance zones, providing traders with clear points for entering trades.

Ernie discussed the importance of timing when executing trades, advising traders to wait for pullbacks to these structural levels to maximize the likelihood of a favorable outcome. He demonstrated how to use vertical lines on charts to mark the specific time frames for potential trades, making it easier to visualize entry points based on volume profile analysis.

The meeting also touched on the probabilistic nature of market movements, with Ernie reminding participants that about 50% of trades may not go as planned. He emphasized the need for traders to accept this reality and focus on the consistent application of their strategies to capture market trends effectively.

Ernie stressed the importance of trade discipline and mental toughness, advising traders to remain patient and avoid emotional decision-making when trades do not immediately perform as expected. He highlighted that maintaining a disciplined approach and sticking to predefined profit targets is essential for long-term success.

Finally, Ernie encouraged traders to consistently apply their chosen strategies for determining market direction, whether using a 14-day, 21-day, or 28-day moving average. He noted that consistency in strategy application helps capture market trends and supports effective trading decisions. The meeting reinforced the value of structured analysis, disciplined execution, and a resilient mindset in navigating market complexities.

Archive, Zoom Daily

Daily Meeting for Monday September 9

Posted on by Conor Browne

Adapting Trade Strategies to Market Conditions and Managing Trade Execution

• Understanding Market Structure with Volume Profile: Emphasized the importance of recognizing key structural elements in volume profile, including volume nodes and gaps, to improve trade entries and exits.

• Managing Trade Execution and Adjustments: Discussed strategies for managing trades effectively, including the impact of entering profit zones too early and the importance of adhering to set profit targets.

• Analyzing Market Reactions to Futures Rollovers: Explained the concept of rollover gaps in futures contracts and how the market often respects these gaps, which can influence trading decisions.

• Technical Adjustments and Risk Management: Highlighted the necessity of adjusting trade parameters, such as the width of trades, based on current market volatility to manage risk and maximize profitability.

• Navigating Low Volatility and High Gamma: Addressed the challenges of trading in low volatility conditions, emphasizing the increased sensitivity to price movements and the need for precise timing.

• Continuous Learning and Strategy Refinement: Encouraged traders to review their trades continuously, learn from past experiences, and adjust their strategies based on evolving market conditions and personal observations.

Summary

Ernie focused on the importance of understanding market structure through the use of volume profile. He highlighted the role of volume nodes and gaps in guiding trade entries and exits, emphasizing that recognizing these elements can significantly enhance trading outcomes. Ernie shared insights on managing trade execution, particularly the challenges associated with entering profit zones too early and the importance of adhering to profit targets to avoid potential reversals.

The discussion also covered the concept of rollover gaps in futures contracts, explaining how these gaps occur when the market transitions from one contract to another and often act as significant levels that the market respects. Ernie emphasized the need for traders to be aware of these gaps and incorporate them into their market analysis.

Ernie highlighted the challenges of trading in low volatility environments, where trades are more sensitive to price movements due to high gamma. He advised adjusting trade parameters, such as the width of trades, to better manage risk and align with current market conditions.

The meeting also reinforced the value of continuous learning and strategy refinement. Ernie encouraged participants to regularly review their trades, learn from their experiences, and adjust their strategies based on personal observations and market dynamics. This approach helps traders remain adaptable and better equipped to navigate changing market conditions.

Archive, Zoom Daily

Daily Meeting for Tuesday September 3

Posted on by Conor Browne

Enhancing Trade Discipline and Managing Expectations

• Managing Trailing Stops: Ernie discussed the challenges of using trailing stops in high gamma environments, suggesting alternatives such as setting fixed dollar amounts instead of percentages to manage trades more effectively.

• Market Volatility and Profit Management: Emphasized the importance of adjusting trade management strategies according to market volatility, especially during late trading sessions where high gamma can lead to significant swings in profit.

• Mental Discipline in Trading: Highlighted the importance of developing mental discipline to manage trades, including making discretionary decisions rather than relying solely on mechanical rules, which can be overly rigid in dynamic market conditions.

• Setting Realistic Expectations: Stressed the need to set realistic expectations for trade outcomes, using historical market data to understand typical return distributions and avoid overestimating the likelihood of large wins.

• Small Gains and Risk Avoidance: Encouraged traders to focus on taking small gains consistently and learning how to avoid losses as the primary objective, especially when starting out or during challenging market periods.

• Continuous Learning and Strategy Adjustment: Advised traders to continuously analyze their performance, adjust strategies as needed, and remain adaptable to changing market conditions, leveraging tools like volume profile to refine entry and exit points.

Summary

Ernie discussed the complexities of using trailing stops in high gamma environments, where small market moves can lead to large profit swings and frequent stop-outs. He suggested alternatives, such as setting fixed dollar amounts instead of percentages, to better manage trades and avoid unnecessary exits.

The conversation also focused on the importance of mental discipline in trading, with Ernie emphasizing the value of making discretionary decisions based on market conditions rather than relying strictly on mechanical rules. He noted that while trailing stops and mechanical strategies have their place, they can be too rigid in dynamic market environments, leading to suboptimal trade management.

Ernie highlighted the importance of setting realistic expectations for trade outcomes by examining historical market data and understanding the distribution of returns. He pointed out that most trades will yield small gains, and it is crucial to focus on consistently capturing these small profits while minimizing losses.

The meeting stressed the need for traders to develop a disciplined approach, particularly in managing emotions and setting clear profit targets. Ernie encouraged participants to focus on avoiding losses as their primary goal, especially when starting out, and to prioritize building confidence through small, consistent wins.

Finally, Ernie emphasized the importance of continuous learning and strategy adjustment. He advised traders to regularly review their performance, adapt their strategies to market conditions, and use tools like volume profile to refine their entry and exit points. The session reinforced the value of disciplined trade management, realistic goal setting, and ongoing education in achieving long-term trading success.

Archive, Retrospective

Sunday Retrospective for September 2

Posted on by Conor Browne

Preparing for Increased Volatility and Strategic Adjustments

• Market Overview and Low Volatility: Ernie discussed the current state of the market, noting the low volatility levels despite ongoing economic uncertainties and the market’s position near Friday’s close.

• Economic Reports Impact: Highlighted the upcoming economic reports for the week, including ISM manufacturing, Jolts, ADP, and unemployment claims, which are expected to influence market movements.

• Global Liquidity and Market Dynamics: Addressed the influence of excess global liquidity on market behavior, predicting that this could drive market gains but also fuel inflation.

• Historical Performance of September: Noted that September is historically the worst month for market performance, which could impact trading strategies and increase volatility.

•Strategic Adjustments with Butterfly Trades: Emphasized the importance of adjusting butterfly trade widths based on the current volatility environment, using ranges between 10 and 20, with potential adjustments depending on the day’s market dynamics.

•Trading Futures and Timing: Provided guidance on the optimal times for trading futures, highlighting the importance of aligning trades with key economic report releases and market openings for maximum impact.

Summary

Ernie provided an overview of the current market conditions, emphasizing the low volatility levels despite various economic uncertainties. He noted that the market was near Friday’s close, and trading volumes were expected to be light due to the Labor Day holiday.

Ernie outlined the key economic reports scheduled for the week, including ISM manufacturing data, Jolts, ADP, and unemployment claims, which are anticipated to have a significant impact on market movements. He highlighted concerns about the recent substantial revisions in employment data, which had previously been inflated by nearly a million jobs, casting doubt on the accuracy of official figures.

The discussion also touched on the influence of global liquidity on market dynamics, with Ernie predicting that as long as excess liquidity remains, the market will continue to rise, though this may also contribute to inflationary pressures. He pointed out that September is historically the worst month for market performance, which could lead to increased volatility and potential opportunities for traders using well-structured strategies.

Ernie emphasized the need to adjust butterfly trade widths based on current volatility levels, suggesting a range between 10 and 20, with flexibility to adapt to changes in market conditions. He also provided guidance on trading futures, advising that the best times to trade are often around the release of key economic reports and during the morning session when market activity is highest.

Overall, the session prepared participants for the upcoming trading week by highlighting the importance of strategic adjustments, vigilance in monitoring economic data, and maintaining disciplined risk management practices in anticipation of increased market volatility.

Archive, Zoom Daily

Daily Meeting for Friday August 30

Posted on by Conor Browne

Navigating Low Volatility and Strategic Trade Adjustments

• Market Stagnation and Low Volatility: Ernie discussed the current market conditions, noting the consolidation mode due to the upcoming long weekend and reduced trading activity.

• Multi-Day Strategy with Broken Wing Fly: Introduced a multi-day strategy using a broken wing fly to capitalize on low volatility and premium decay, with trades set to mature after the long weekend.

• Adjusting Trade Parameters: Emphasized the importance of adjusting trade parameters, such as width and asset type, based on market conditions and the expected volatility environment.

• Gamma and Volatility Analysis: Highlighted the relationship between gamma risk and implied volatility, using tools like the “big ass fly” to fine-tune trade decisions in varying market conditions.

• Risk Management and Trade Flexibility: Discussed managing risk by scaling trade sizes and choosing appropriate strike widths, especially when market movements are uncertain or spreads are wide.

• Handling Execution Challenges: Addressed execution challenges in trades, such as wider spreads and price jumps, and provided strategies to mitigate these issues, including using futures for extended trading hours.

Summary

Ernie focused on the current market conditions, describing them as stagnant and consolidating ahead of the Labor Day weekend. He noted the lower trading volume and the tendency of traders to stay within their comfort zones, avoiding significant risk-taking in this environment. Ernie introduced a multi-day strategy using a broken wing fly, aimed at leveraging the low volatility and accelerated premium decay, with trades set to mature after the long weekend.

The session included a detailed discussion on adjusting trade parameters, such as the width of trades and the choice of asset types, to better align with the prevailing market conditions. Ernie emphasized the use of gamma and volatility analysis to understand the risk-reward scenarios, utilizing tools like the “big ass fly” to fine-tune decisions based on current market expectations.

Risk management was a key topic, with Ernie advising traders on scaling trade sizes and carefully selecting strike widths to manage exposure effectively. He highlighted the importance of maintaining flexibility in trade execution, particularly when market conditions are uncertain and spreads are wide. Execution challenges, such as rapid price jumps and fluctuating spreads, were addressed, with Ernie providing strategies to mitigate these issues, including using futures to trade outside of regular market hours.

Overall, the meeting reinforced the need for strategic adjustments in trade execution, disciplined risk management, and the importance of using technical tools to navigate low volatility markets effectively.

Archive, Zoom Daily

Daily Meeting for Tuesday August 27

Posted on by Conor Browne

Enhancing Trade Execution and Market Strategy with Volume Profile

• Refinement of Volume Profile Techniques: Ernie introduced updates to the volume profile technique, emphasizing clearer marking of node boundaries to aid in identifying structural levels for trades.

• Strategies for Low Volatility Markets: Discussed the challenges of using certain strategies, like the Batman strategy, in low volatility environments, and suggested alternatives for better management.

• Gamma Risk in Trade Management: Highlighted the high gamma risk associated with certain trades, especially in instruments like NASDAQ, and provided guidance on managing such risks effectively.

• Adjusting Position Sizes: Emphasized the importance of adjusting starting position sizes and increasing them to achieve better profitability, based on recent analysis of past trading performance.

• Use of Technical Tools: Provided insights on using specific tools, like the Profit Taker, and discussed their role in improving decision-making during trade execution.

• Awareness of Phishing Attempts: Shared information on identifying and avoiding phishing attempts, particularly in platforms like Discord, to protect personal data and accounts.

Summary

Ernie discussed refinements to the volume profile technique, making changes to node boundary markings to help traders better identify structural levels for entry and exit points. He stressed the importance of understanding how these levels function within the context of the market’s current trend.

The discussion covered the challenges of using certain strategies, like the Batman strategy, in low volatility environments, and Ernie suggested alternatives for better management in such conditions. He also highlighted the high gamma risk associated with certain trades, such as those involving NASDAQ, and provided guidance on how to manage this risk effectively.

Ernie advised traders to adjust their position sizes, recommending a gradual increase to improve overall profitability. This suggestion was based on a recent analysis of his past performance, which indicated that a more aggressive approach could yield better results.

The meeting included practical advice on using technical tools like the Profit Taker to improve trade execution and decision-making. Additionally, Ernie shared important information on recognizing and avoiding phishing attempts, particularly on platforms like Discord, to protect personal data and accounts.

Overall, the session focused on enhancing trade execution techniques, refining strategies based on market conditions, and maintaining vigilance in online security.