February month has been a volatile roller coaster ride in Nifty futures so far with Nifty Futures swinging back and forth 500 points (total of 1000 points swing) with increasing intraday volatility. Managing trades with a reasonable stop loss is bit difficult with the given intraday volatility & faster price swings.
Here are the 5 important factor a trader has to manage while markets are showing high intraday volatility
1.Trade Location: If you are a discretionary trader then every price is not an equal price for you. Traders reacting to every emotional price reactions ends up catching price at the wrong trade location. Watching the price and reacting to every high volatility breakout could be a costly mistake in a highly volatile environment. Most of the right trade locations with low-risk high reward trade setup happen to be in uncomfortable zones. Make sure you prepare your mindset to enter at the uncomfortable zones.
2.Market Confidence: Market Confidence is nothing but how the buyers and sellers are exhibiting their confidence for the given day. And what kind of participants are showing confidence throughout the day?
Reading market confidence is likely to be a continuous process throughout the trading day which helps active traders to focus on the more objective way of analyzing the market context and thereby creating a robust trading plan with reasonable targets and stop-loss levels thereby not deviating emotionally from the trading/execution plan.
3.Top-Down Analysis: Top-Down Approach provides us the macro visual perspective of market participation. We will start with monthly charts to understand the long term participation, weekly charts to understand the intermediate-term players and the daily charts to understand how the shorter timeframe players are behaving.
Performing a top-down approach often reduces the trader’s stress and emotional less and brings objective goals to target from the short term perspective. Top-down analysis often resets the emotional thoughts about the markets and significantly reduces the cognitive bias.
4.Cut down the trade times: Most of the high volatile phases markets chops the traders with high volatility. One of the primary goals of the trader is not to get chopped around the market open and often a trader has to get into the neutral mode and only participate at the right trade location where the risk-reward ratio is much elevated.
Cutting down the holding period in a highly volatile market with shorter holding periods often reduces the drawdown and makes one focus on the quality of trades rather into a quantity of trades.
5.Have a Trading Plan: Preparing for any trading day is not just about scrolling through the charts or scanning for signals. A trading plan is more of a thought process about how well you understood these markets.
The trading plan is all about reading the market context, organizing the data in an orderly fashion and from the information & signals collected from the trading analysis tools one should prepare trading scenarios, low risk – high reward trade locations & Possible high probability trade setups and how to mitigate risk in a volatile sentiment. What reference level to monitor to today and why to monitor are the key foundations of having a successful trading plan.
Having a trading plan often helps traders to understand the trade location much earlier before the market opens.