March 18th Day Trading Recap: 11 Points – The Triumphant Return of Volatility!

Getting Off to a Good Start

Now this is the way we like to start the week!  As day traders, volatility is our best friend.  Without it, the opportunities are few and far between and we need to be very careful in terms of our targets and risk control if we want to come out ahead on a daily basis.

A lack of volatility pretty much summed up the action last week.  The price action was extremely slow and the various contract expirations last Friday didn't help with getting things going.  It's not uncommon to see some this sort of decreased movement during an expiration week in the futures market, but this one was "special".  Why?  Because it wasn't just low volatility, it was almost non-existent!

S&P 500 VIX

The chart above shows the VIX, which is a measure of the implied volatility of S&P 500 index options.  Essentially what it's meant to do is predict the stock market volatility over the next 30 days but it still gives an interesting read about the current emotions in the market.  Here at Samurai Trading Academy we don't try to feed our egos by predicting the future as we prefer to read and follow the market action as it happens, but it should give you a good idea of just how slow things have been so far since the start of the year.  Last week the market was so sluggish that we pushed the VIX to lows not seen in years.

So what does this all mean?  As day traders using our STA trading methods, it means a couple of things.  One, if we are still able to reach our goal of making 10-15 points per week (as we did last week) using our trading method then we are doing exceptionally well.  Many traders struggle in these markets but with a good day trading plan that keeps risk low and can adapt targets for low volatility conditions, it's still possible to make at least a couple of points most mornings.  That's really all you need to make it as a professional trader.

The second thing the current conditions tell us is that there are likely very good times for day traders ahead!  Low volatility never lasts as the market is created by people, and people are often taken over by emotion.  Right now things are calm and some position traders have likely become a little complacent.  What will happen when the market gets a little shock in the not-so-distant future?  There will be a sudden shift in the emotions of players in the market and fear (and a bit of greed) will suddenly overcome many.  This fear leads to big moves and if you as a day trader have a plan and keep your head then there are often HUGE profits to be made.

As much as we like to think there are clear and calculated reasons the market moves the way it does, that's not usually the case.  Human emotions - largely fear and greed - are the real market movers. 

So the way we see it at STA is that the current trading environment is about as difficult as it gets and we are still making consistent profits with our approach, so just imagine the potential once things really get moving again!  Will you be prepared to profit when great volatility returns for weeks or months at a time?  It could start in days, weeks, or even months, but the point is that you need to plan now if you're going to be ready to take advantage.

 

Today's Day Trading Recap - Price Keeps Running

We started things off with some fairly wild action in the pre-market.  While this is no guarantee of good volatility when the market opens it certainly does increase the odds.  While we had gapped down over the weekend we had seen some recovery so I went into the market without any sort of bias and just looked to follow the market flows.  This is a key part of how we trade at STA - we don't allow the past to influence us too strongly.

What is happening now is more important than anything, so we allow the market to tell us what it wants to do and join the ride.  This is much easier than trying to push our own ego into the market as we look for things to do exactly what we want or hope.

Day Trading Futures Chart March 18th B

After trying a short at the market open that didn't fill, it didn't make sense to try the trade again.  There are specific ways we need to treat the market open due to additional risks and the pullback was no longer a high quality trading opportunity.

From there we had an excellent run up that set the table for our trading over the next hour.  In this case a Fib Extension was a useful tool as it allowed me to set some potential targets for later in the day if we ending up breaking the ~1543 highs.

Day Trading Futures Chart March 18th C

As you can see, the trend worked out quite well with a number of 2 point trades.  I did get a bit greedy and tried for a larger target on the third trade as I wanted full 3 points at 1546 (purple line) but when price didn't make it I just took my regular profit.

The final trade was a bit of a struggle, as I came with a tick of hitting my take profit (right at my third target area for the day) but price didn't quite make it.  From there momentum in the market slowed greatly and I went into a bit of drawdown as I looked for the trend to re-establish itself.  We saw a nice bullish spike but again things slowed right down and it was  getting close to 11:00 EST so I took my 1 point and called it a day.

Hope you all did well trading today and with any luck the volatility continues to provide more great opportunities this week!

 

Cody Hind

Founder & Head Trader at Samurai Trading Academy
Cody has over a decade of experience day trading the Emini S&P 500 (ES) and Forex markets and has worked personally with dozens of traders to help them achieve consistent profitability and make trading a full-time career.