Tuesday, August 25, 2009

Volatility

Over the past month, with markt volatility subsiding we have continued to see smaller intra day moves as well as "quieter" summer trading. While there are opportunities each and every day, we need to make sure to keep in mind the level of volatility in the market and how we trade according to it.

During periods of expanding volatility we look to widen our parameters for winners, letting them run further, while becoming more aggressive in both the number of trades we make each day and our involvement in sector plays (and vice versa).




If you look at the chart of the VIX over the past 6 weeks, you will not only observe that we are near the low end of the range (a sign of less volatility), but that the range of the VIX during each trading session is quite compact. During the first quarter of this year it was not uncommon to see intra day moves of multiple points for the VIX, where as lately a one point move is the norm. When the VIX picks up in momentum and range it will be a signal that market activity is increasing, and as a result our trading should increase accordingly.

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