Wednesday, February 22, 2017

Finding Opportunity in Difficult Market Conditions

In my recent Forbes article, I reflect upon traders that I see making money in these low volatility market conditions and identify four strategies that they are employing.  In each case, they look at markets in a different way to detect meaningful movement in seemingly choppy, difficult market conditions.  

What the article doesn't highlight is that the great majority of those traders had to go through challenging P/L periods to get to the point of embracing the strategies that have proven helpful.  They stayed on the dance floor long enough to find opportunity.  Many times, inspiration came from seeing what other traders were doing that was making money.  That inspiration led them to try new things in small ways, build familiarity with a new way of viewing and trading markets, and then build out those strategies.

In my most recent trading, I have been focusing on identifying stable market regimes--periods in which who is in the market and what they are doing has been relatively constant--and then identifying winning trading patterns specific to those regimes.  When I detect the current day's trading to fit within that regime, I wait for those winning patterns to emerge.  Those define opportunity for that particular market.  Another market may yield a very different pattern of opportunity and still others may yield none at all.  

Note how different this is compared to expecting one particular "setup" to work across all market conditions.  It opens the door to opportunity in a new way.

If markets are always changing, traders must always innovate.