Surviving Day Trading In These Wild Markets

Published on: March 03, 2022

We are living in interesting times and the market has responded to the current war in Ukraine with a huge dose of volatility. In this article, we’ll look at how you can adjust to this. 

Without sounding like a conspiracy nut – I think the past couple of years should be reflected upon in terms of how the news companies use these events. News companies need an audience and the audience likes a nice dose of FUD or “Fear, Uncertainty and Doubt”.

Reporters are just people like you and me, doing their job. When the job is focused on one long-running news event like COVID or Russia v Ukraine (hopefully that doesn’t run too long) – then it is much easier for them to create headlines and content.  Hence – COVID seems to have suddenly taken a back seat in the news for the much juicier war in the west. 

I’d like to think this is an observable reality and not a kooky conspiracy theory.

The media love to focus on one big juicy issue and in turn, the markets tend to react to that news in a fairly uniform manner. For those trading during Brexit, it was almost farcical how the market reacted to every flip and flop regarding the UKs 2nd referendum.

Right now, we are seeing markets have huge volatility and lots of people are asking “what can I do?”. And remember – Brexit ran on for a long, long time, so the opportunity was far from fleeting.

For years at Jigsaw, we’ve been preaching that most trading setups have an optimal set of market conditions they work best in. That’s something we invented – just what we see as the reality on the ground with those successful in trading. They adapt as the market’s change and volatility moves up and down.

Market conditions have absolutely changed as a result of what’s happened in Ukraine in the past week.

But how deeply do you need to understand it all?

Oil prices have gone up and that’s going to impact inflation as well as corporate profits. Of course, any individual company can push up their prices to take into account higher oil costs but consumers still have a limited amount to spend. It’s going to hit corporate profits at some point. That is UNLESS we see rampant inflation in which case corporate profits will rise as will share prices but it’ll all be worthless in real terms.

Sounds like economics – please stop!

Now – none of us signed up to be economists – but my take is you don’t need to be. We are observing a change, we know why it’s changing. But we don’t need to be able to predict the long-term knock-on effects of each piece of news. Partly because – the market doesn’t always react the way “economist logic” tells us it should. 

Think of economics a bit like weather forecasts – interesting- but take an umbrella anyway.

At a minimum, you need to widen your stops as volatility increases. In the case of the Ukraine-Russia war, the news is going to be driving the moves. 

For example, you might be in a nice little uptrend, see a pullback and be ready to go long but then “our man from Kiev” comes on TV and the market initiates a completely new move. If you just tune all that out – it’s going to hurt. There’s slippage, then there’s slippage when big news hits the markets.

I remember being in a Bund trade when Angela Merkel said something about Brexit. I was 12 ticks above my stop at the time she opened her big mouth made her comments and I got filled 23 ticks below my stop. Now, as I recall, this was before we moved into our current house, so it was about 10 years ago. 

And I am still whining about it at every opportunity! It hurt.

Being news aware is not optional at this point in time. I do get that people don’t like to trade the news but the news has already taken away some of the opportunity in the markets. Or a better way to look at it – news is currently one of the biggest opportunities in the markets. If you keep on trying to trade the pre-war market conditions, you will get taken out. 

This is all about you, though. You have to get comfortable.

You have to take what you know and figure out how to apply it to these markets. This may sound crazy, but you might find market conditions more to your taste during US evenings when markets are traditionally quieter.

Any plays based purely on speculators being offside (e.g. intraday volume profile/footprint techniques) are quite tenuous in my opinion as these plays were intended for times when there’s little going on but speculators pushing the market around.

If you want to play the news-generated momentum, then it’s all about having a period of observation with an ear/eye on the news to get in tune with how it’s moving in relation to news of specific types.

For me – I’m on the lookout for:

• UN/NATO announcements
• Comment from China
• Ground lost/gained in the war itself
• News on peace talks
• Scheduled press conferences
• World leaders – Biden, Putin, Xi, Macron etc.
• Escalation/involvement from other countries
• Veiled threats of nuclear action

How do you do this? Well – news tends to flip-flop. So as an example “it’s over soon” and “it’s getting more serious” will be recurring flip-flop themes. Each will have a fairly predictable reaction. This could be (for example) that the market moves for a few hours, it could be an initial spike and a reversion to the old prices, it could be a swift move one way and an extended move another way.  It could be a move that then reverts to old prices over many hours.

All very playable.

You aren’t trying to be an economist but you are saying “how does it usually react to news like this?”. After all – the traders making bank on these days aren’t economists either – they are just used to the market knee-jerking in different directions and have seen enough of it to trade it. 

The market has the jitters. It will be at its most predictable when absorbing big news. The worst time to get in is before some news that your crystal ball didn’t tell you about. 

At the very least, you should endeavor to keep an eye on the news to avoid unnecessary losses. Moving to micros and looking for runners (but keeping risk equal overall) isn’t a bad plan. What you can’t do is stick with the same approach/setups. Some will work with adjustment, some need to sit on the shelf for now.

One more thing. It may feel uncomfortable profiting from these events and discussions like this might come off as ruthless. I get this but also – if your job is trading, then you are always trading the moves. It is a moral dilemma I have no answer for. I am not a big fan of it either. Maybe a more enlightened member can help us here…