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Ep 15: Trading Volatility: on Volatile Stock Market Days

October 2nd, 2014

It is Oct 2nd 2014 and today we are going to talk about volatility, we will do the recap here. I want to talk about some positions, the things I have been watching and things I am looking at. I had some volatility come into the stocks lately.

If you look at the Dow Jones what you can see it basically when we have these highs right here the market continued higher and then we broke back under that level. It couldn’t hold it. You can slowly lightly see that we have an acceleration of down volume.

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An acceleration of volume to the down side that is kind of what I am seeing right now at the moment. Today was an interesting day. What happened is stocks don’t go straight down. I know some of these days are very difficult especially if you went short. We had a couple of days here which we were consolidating. We went down then we popped up then we went down again. We started up then down again.

Volatility is basically the stocks bouncing up and down all over the place. Today was a crazy day. If we zoom in further here you can see the last few days what has been going on it has taken to the 30 minutes. You can see here we have this trend line here. We were going down for a while and then on the 24th we popped up higher we were going higher. People are wondering why are we going higher? This is the 50% retracement on this little short move.

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If we look at this little move from here to here you can see right there 61.8, how it hits it nearly exactly on that retracement isn’t that funny how that works out? What happens here is basically a lot of people go in short. They may going in short here, they may go in short here and they slowly start taking in their profits. Then as they take back their profit they are buying back stock. That means they are buying, they are buying back their shorts. Now you have people who are trading on the long side they are saying “hey, the market is going to go higher.”

What they will do is they will buy the stock and think they will go to the upside. So then what happens is the stocks trend higher for a bit. This was not sustainable since there wasn’t enough buyers it continued the next day to go under and we tried a similar trend to go higher then we went sideways, consolidated, sold it off huge. We continued the sell off but then now we are popping higher.

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Again if you look at what happens is we went A to B, C to kind of D.  what we are doing is we are popping again a little this is what happened here. It really was volatile day for a lot of people. What I wanted you to note is that even at the end. They are down 3 points and they are saying we are almost positive. The market could still be health we have the jobs numbers coming in tomorrow watch that closely but watch how this rolls over. If you look closely at the end of the day at the 30 minute. Where was the volume? What spikes do you see, do you red spike or do you see green spikes. I see red spikes.

Lets take it to the 10 minutes. Here as well you have huge red spikes. You can look at the diamonds which I think have a little bit more than you can see, If you stretch it can be easier to see . Again 10 minute, 15 minute, here is the 30 minute. You can see the huge volume is to the down side when we pop here we do it on lighter volume. Everyone has their opinion on the stock market; to me what I see is that we may pop for a day or two. Could we pop for a week? I don’t know but what we can do is that we can pop a little bit here and chances are we would roll over unless volume came in. What I am seeing here is that we have A to B, B to C and maybe going lower afterwards.

Today’s market action since it was very crazy it did stop on a few positions. It did not do well on quite a few positions actually. I know a lot of people on the short side got stomped out. LNKD for example popped between the moves her at the 200  and 207. When you are trading the bigger stocks I would give this stock a $5 stop. It stopped me out. I have it a $5 stop and it stopped me out. That to me was bad. When the stock market reacted, it went against this level.

Still holding my position for UA (Under Armour) or the short side actually. The reason I am is that I am looking at this bar here and I see 3.3 million shares on the down side and I see 3.1 million to the upside. The market is not overall healthy. If I zoom it further on, I don’t see it moving up on heavier volume. What happened here to the down side is that with heavier volume but really what I want to do is watch it on the daily and I want to see what is happening. Right here, I am just watching things closely. I do have a stopping place here. We will see tomorrow what happens, it could be another losing trade.

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Some positions that are working well Time Warner  we talked about this one right here doing fine shield as well. This one spike quite a lot today on the news since I got in it short while still in profitable territory but this one is running up a little bit, not too worried about it. At $28 it could be a little bit of a retracement but it is not popping at anything major at the moment.

Looking at Monsanto , this one as well. This one has acceleration of volume. The reason  I say that what is going on here at the long terms is that if I look at the end of the day. Lets say, 5 minute, 2 minutes, normally I don’t watch these smaller ticks. But if I am watching and I briefly glance at them, what is going on here is that people are buying or selling. Sometimes these bars right here will give you a little bit of a distraction. On 10 minutes, it looks like it went up. As we zoom on the tick specific area. We have somebody do a huge amount of buying, maybe they are buying back their shares here in the 1 minute. Toward the end of the day we had a lot. Let us zoom in at the 3 minutes, but towards the end of the day we had sell-off. This is what I do I like to check the stock.

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Amazon as well,  we had people buying back their share as well. I had someone put in 40,000 shares that they were purchasing here. Looking at this one here, it is the line in the sand. Putting this level at 319-320. They will try and pop it up to you and say “hey, this is moving higher” The volume isn’t showing there at the hourly. If I compare it here or even this cluster right here.  If I look at this area you can see that the volume here in that zone is pretty heavy. It is much heavier than the up volume. What they will try to do is they will try and pop that stock higher because they want you to do a trade. They want to either sell their shares into you or the want to buy your shares.

You have got these operators Carl Icahn, Buffet, they say they want to buy the market. But of course they might be saying that for 2 different reasons. Number one they might say they are buying the market because they want you to spark the price and say “hey, I want to get in it.” They might want to sell the market because they have millions and millions of dollars to unload on a purse-stock basis. Or what they could be saying is that we are buying the market because they want you to keep those prices up, nice and high. There could be a bunch of different reasons they could be saying that. Keep in mind they don’t trade in the same way that you do.

For some of us little guys we don’t trade millions and millions worth of stock. That is perfectly okay. There is nothing wrong with that. But the difference is it takes them much longer to get in and out of the position. Sometimes weeks to get in and out of position. For them when the stock is moving back up, 5-10 points it is not a big deal even though they a $200,000 loss on that account  because they know they will make it up later. But for you it might be a much bigger deal especially a $2000, loss $5000 loss, $1000 loss. You need to be mindful of your loss because they can move these stocks anyway they want to. Sometimes when you hear people talk about them pinning their stocks, they try and move these stocks to a certain level  to 30 because they have these options, they are trying and move them in a certain direction and that is what they do. They move stuff around, so always be mindful.

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GoPro right here, that is  what I always say, a sell into strength. Look at the volatility, we has a huge spike up and people like “oh, it is going higher” You don’t chase here. You sell up in these lines. When the stock has moved so far then you have a huge $10 sell-off. Chances are, my view on this stock are one day doesn’t make a trend. Even though you have this little bounce right here because of the news that they are not selling their shares yet. I would say that even if we fill this gap right here, it will probably come back to we test the 70 with the healthy.

Who knows what is going to happen, there is huge interest in this stock. I got out of my position, and the way I did that if you want to know, is you take this off, because you know it is in the 70s. You take this trend line, right here, it stops you out. You can zoom in closer and you can see the trend line again down a little bit differently, right there, that is your trend line. That is something that you can use. Everyone trades differently, you need to be mindful of your stops.

Today’s market action was volatile and it has been. So, what do you do in these volatile sections? The thing is you trade lighter because stocks bounce around much more. We had stocks like Facebook even. We had a huge sell-off the other day. Let us look at 30 minutes. We have had a huge sell-off and now e have had some bounces. It has been moving up a little bit. Chances are again we will probably grow over. A little bit of what happened it a little bit of a selloff here. That is what is kind of going on and what is happening. Look at this line, can we get back at this channel and can we try and move higher? Yes we can because the operators, they try and tease you. They will try and play with  you and then they will pull that rug under you.

That is just some insight I wanted you to know about today’s market action. If you took a loss today or if you are trading in these markets because they are more volatile, you want to trade lighter than normally. If you are more experienced, you know what is going on and what is happening then maybe you want to trade heavier. But in that case you would be sticking to your own strategy and plan. Typically after 4 or 3 days of down days, you don’t want to continue to act in these positions you want to be watching the bounces and typically short those bounces.

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If I look at the S&P here is what I was watching. Let us take this line off. We kind of sold off at those lines right there. We broke through this line, this is the critical line. Then we went sideways for a few days more or less downwards. We held this little level here for a few days and we continued to sell off. If I run this across you can see that these highs were hitting here and pretty much here. This was our critical line in the sand.

Now the next thing we are watching the lows here, you saw we bounced over here over. On the previous times we bounced. The thing is that you are watching here what is happening. We are increasing the volume to the downside. We are not having the greatest news that is happening on the market. So what do you think is going to happen? Even if we 50% or comeback to retest this level chances are my guess will be it rolls over.

Of course the market can be whatever it wants. But I still watch this 1900-1910 level . If it breaks, then all bets are off then further prices are lower. Watch this, we are picking up volume. You see how they are going to hold this up. Because they will try to hold this up. The operators they will going to try and pump the stocks. They are going to tease you. They are going to try and push them higher like with the Facebook, like the Apple.  The reason they do this is because these are the stocks many people are in. They have a huge effect on the indices. That is what they do and that is what you want to watch.

Be mindful of the volatility. I know I didn’t go over a ton of stocks today but these are some key things that you want to be mindful of. Always stick to your stops, during these volatile markets, you will want to want to trade a little bit less. If you are trading options this is a great time to trade option premiums because if you take a look at what is happening with the VIX in terms of volatility. The VIX is for those highs and great things for those in condors, butterflies, calendars, those kinds of things, you might want to wait until it makes drops again. Right now you have great volatility here at the highs, maybe a good time for selling the premium rather than buying premium. Because that means option premiums are expensive when the VIX is high.

Alright, I hope that was helpful, enjoy your weekend if the market was a little bit grueling for you today. You wanted to pull your hair out, I know the feeling, I have been there, it has actually happened to me as well. Some days are like that and other days you are going to be smiling with a huge grin. Don’t worry so long as you stick to your stops, stick to your rules. There is always another day, there is always another trade. Have a good weekend and I will see you next time.

Author: Sasha Evdakov

Sasha is the creator of the Tradersfly and Rise2Learn. He focuses on high-level education speaking at events, writing books, and publishing video courses on business development, internet marketing, finance, and personal growth.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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