How To Trade Stocks In A Volatile Market

Posted By on Feb 11, 2015 | 0 comments


An equity daytrader's goal is to profit off intraday price swings in invidivual securities. The greater the intensity of intraday price fluctuations (bigger stock price swings up and down) and the higher frequency of spotting these situations are a daytrader's dream. More volatility = More profits to be made!

So how do you trade stocks in volatile markets? I trade with the same caution as I do in slow markets but I will try to trade bigger sized positions during times of extreme volatility. So if I normally start off with a $60,000 buy position, in extreme markets I will try to initiate a position of $80,000 or even $100,000. Why? Think of it like a hot blackjack table. Yes ... trading is not gambling if you know what you are doing, but when you anticipate a hot streak or are in a hot streak, the payoffs are fantastic. You would normally want to bet more per hand when the cards are being dealt your way. The same goes with stock trading. The conditions for a hot streak in the stock market are when the markets are volatile. Be confident and trade bigger sized positions in times of volatility.

VIX-CBOE-volatility-index-stock-market-daytrading

A great indicator of stock market volatility is the CBOE Volatility Index (VIX). The VIX is a popular measure of implied volatility of S&P500 index options and often referred to as the fear index or fear gauge. The higher the VIX number, the greater the volatility of the markets which usually signals that the stock market will fall.

My best trading months throughout my career were usually those when the VIX was at 30 or 40+ everyday. And in October 2008 when the VIX went over 60, I scored my personal best trading month ever. I averaged a consistent $20,000 to $30,000 in daytrading profits (I trade at home by the way)! The reason why I was able to make that kind of money was because I was trading double or even triple my normal dollar amount positions and there were so many good trades to jump into each day.

Of course all this can happen if you are a profitable and consistent daytrader to begin with. When you can end up green almost every day trading, it means that you need to "man up" when the markets give you a golden opportunity when the VIX stays above 30+.

- Hubert Tsai

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