How To Trade a Volatile Market
By Ernie Varitimos
July 21, 2022
0:00 / 30:46
How To Trade a Volatile Market

All right. It is the zero days to expiration the podcast episode 97. And today we are going to talk about volatility because we have volatility Supreme off the hook volatility. It's unbelievable. It's the continuation of what appears to be a bear market rally. It went up, it looked like it was going to go for the gold and it entered a massive volume well.

Now volume Wells in our power, our power parlance, sorry, tongue good in the way is a very low liquidity zone. And when price enters that zone, man, it can run and it did it ran, but. Appeared to come up against an LVN or a low value node, which is the extreme low in volume. And for whatever reason that usually provides some sort of inflection point, maybe resistance, maybe not.

It's like a gate, either the gate is open or it's closed. Well, today it was closed and it looked like it rejected price and sent it back to its previous place of birth. Another volume node that we call T zero. All right. So all of that is kind of technical. And if you join our service, become a trial member, you'll learn all about how to analyze volume profile and get a good idea of how price may behave.

But in any event, we don't really know what's gonna happen from day to day. As a matter of fact, we have no idea. And the best that we can do is we can put up and analyze market structure. Get an idea of where orders may be lying. And we can actually see the orders as well. But using our volumetric me methods and volume profile, we have a good idea of where VO, where orders are lying and where they're accumulating and where it will provide support and resistance and these inflection points.

But we don't know for sure, cuz we cannot tell what the market's gonna do today. There was virtually nothing really of any strength. Coming into the market, no energies. And I understand that we have a lot of earnings coming out this morning and this evening, and that may have had something to do with it.

But, uh, it didn't really, uh, I, I don't think that it was the cause of pushing the market up 50 points in, in the course of about 10, 15 minutes. No, it it's. That's just not, uh, how that works, but anyway, That's because we are in one of those markets where bear market rallies in a bear market, bear markets are hugely volatile.

We've been maintaining volatility on the VIX in the mid twenties, mid to upper twenties. And every once in a while, the market needs a little reprieve it, and it goes for it. It goes for this violent move upward, which is usually met by. Equally as violent moved backwards. And that's exactly what happened today.

And look, we may still go up again. I don't know. I really don't know. The question is how do you play these markets? It's crazy. If you don't know where price is going, you don't know the extent to which it will go. What is its direction and its magnitude. We call that the vector, the market vector. We try to figure this out every morning, at least come up with some idea what is the market vector?

And then from that, we can look at the market structure and say, okay, it's gonna go in this direction more than likely. And it's gonna come across this piece of market structure, whether it's a value node or a volume well, or an LVN or whatever it happens to be. And then we'll come up with what we think are scenarios.

Might possibly happen based on our knowledge of how price behaves as it enters this market structure. Now we don't know. So what we do is we'll create a couple of scenarios. We'll create a bullish and a bearish one, and then we'll favor one over the other. Now, of course, in a market like this, where it's a bear market, although we have been going sideways for the past several weeks or few weeks, generally we pick the bearish scenario.