In tonight’s video, we’ll take a look at how to leverage the increased volatility as a result of the trade war and U.S. Missile Strike on Iran to find high-probability edge trades.
For nearly the entire week, we noticed we had plentiful opportunities where price action reached our Volatility Box entry lines, for both stocks and futures. This gave us, the trader, an opportunity to pick and choose which asset class to trade, and how to trade it.
Missile Strike Volatility in Futures Index Markets
For January 3, 2020, we had trades set up across all four indices, in the /ES, /NQ, /YM and /RTY futures. However, each trade was different in its own manner. While the S&P, DOW, and Nasdaq gave us clues early in the morning to switch to our Conservative Volatility Box, the Russell 2000 did the opposite.
Below, we have a breakdown of each of the trades in the index markets:
S&P 500 Futures (/ES):
The S&P gave us an opportunity to go long after we had a sell-off in the markets during the 10-11am PT hour. Price fell perfectly into our Volatility Box entry line, giving us a stress-free, high probability trade.
Our first target was 4.5 ES points away (+$225), with our second target being closer to 10.75 ES points (+$537.50). The S&P did not continue drifting much higher after our second target line, giving us a max total gain of nearly 11.75 S&P points (+$587.50).
Nasdaq Futures (/NQ) and DOW Futures (/YM):
The Nasdaq and DOW futures also gave us a similar entry, as price fell into our Volatility Box line, letting us trade at the edge, with an edge. The beauty of Volatility Box trades is not only our systematic approach, but also the risk-reward ratios that are typically skewed in the trader’s favor.
This gives us the confidence to take trades as they set up, knowing that the ratios are skewed in our favor, along with probabilities, making the system a long-run winner. As Mark Douglas said, it’s critical to view each trade as a “series of trades,” instead of focusing on the trade in an isolated manner.
We risked ~15 NQ points ($500) to make that same 15 points with our first target. Our second target was at the Volatility Box target line which was never hit, before our break-even stop was taken out.
For the DOW, we risked ~40 YM points ($200) to make that same 40 points with our first target. Our second target was at the Volatility Box target line which was 90 points away ($450) and was also successfully hit.
Russell 2000 Futures (/RTY):
And finally, The Russell 2000 Futures was once again the odd one out. Within the first hour of trading, the Russell showed us the opposite of what it had in our previous Daily Trade Report – this time, it exhibited less volatility than the other markets.
This gave us our signal to continue to use the Aggressive Volatility Box to try and capture any moves in the Russell, which gave us a nice entry towards the end of the day. However, unlike the S&P, DOW and Nasdaq, the Russell fell further into our Volatility Box clouds implying additional volatility.
While we did sink deeper into our clouds, the RTY did end up bouncing, giving us a nice winner to close out the day – using the models, which our trade plan suggested for us to use.
In today’s Daily Trade Report update, we covered four successful trades across all four of our major market indices. The S&P, DOW, and Nasdaq futures gave us trades that were straightforward and stress-free. The Russell presented a slightly more emotionally challenging trade, as we approached our stop before bouncing higher, ultimately giving us our targets.
However – Our volatility trading strategy helped us pull money out of all four of the markets. And that’s what’s important. We were able to end Friday on a winning note, and close out a week of profitable trading on a strong note, due to missile strike and trade war volatility.
So far, 2020 has been great for our volatility trading strategies. We had AAPL hit our target of $300 a few days ago, and the indices have been following and respecting the Volatility Box. We’ll continue to employ the same trading strategies, until the market tells us otherwise.