New traders, especially those who are lured by the prospect of exponential tendies, tend to think that there will always be volatile price action which means constant profits.
But markets are not always volatile and there are periods where your charting software looks like it has locked up because price isn’t moving at all.
If you’re not used to trading low volatility markets but are still determined to do it this year, then you should consider the following:
You may use a trading system that’s not designed for tight ranges
Using a trend-catching strategy in a range-bound market is like pushing a square peg in a round hole. It just won’t fit, and you’ll likely wind up hurting yourself if you force it.
While taking advantage of different market opportunities is a huge part of becoming a consistently profitable trader, it’s equally important to have a clear plan of action before taking a setup.
This means setting entry and exit levels based on your strategy rules, as well as identifying beforehand the conditions that could invalidate your trade idea.
Not something that can be instantly done if you’re trading in an unfamiliar market environment, right?
You may end up forcing your trades
If you’re used to volatile prices and are expecting the same returns in a low volatility environment, you’ll likely force your trades in two ways.
First, because you feel you “have to trade” or “make money today,” you may be pressured to take low-conviction setups that you wouldn’t have given a second look on a more volatile setting.
As Black Panther once said, we don’t do that here.
Not having a position IS a position. Do not undo months of protecting your capital by exposing it to mediocre setups that don’t maximize your edge.
Maybe you’d think, “I can’t make 20 pips using one lot in this market, but I can try to make 2 pips using ten lots!”
In this scenario, you’re forcing trades AND doing it with increased risks with the use of additional lots. Yikes!
Your inflated position size could make a considerable dent in your account if price unexpectedly moves against your trade.
So, does this mean that you should stay away from the dead markets and just focus on having a hot girl/hot boy summer?
Not at all! In fact, there’s one good reason why you should still stick around…
Consistent profitability requires attendance
Well, at least in the beginning. You have to start somewhere, right?
To build a system that would make profits in a low volatility environment, you’ll first need to experience for yourself the changes in price reactions and tendencies that would hopefully give you an edge.
You’ll need to answer questions like
- “What market catalysts are traders pricing in?”
- “Does X still move in direct correlation with Y?”
- “Does Asset A still respect Indicator Z in the X time frame?”
- “What’s the average volatility for Asset A on low volatility months?”
Remember that a consistently profitable trader is one who can manage risks.
It’s not your job to take trades every day, it’s to take trades that have the best odds and that maximize your trading edge.