Average True Range at multi-year lows

Discussion in 'Technical Analysis' started by futurecurrents, Jun 22, 2005.

  1. As if we really needed more confirmation of dropping volatility. I've noticed that the 50 day average true daily range on the naz and the S & P are both at or near seven year lows. The naz shows a steady decline in volatility with no sign of slowing.

    Since many of our methods need some market movement to succeed this does not bode well for us breakout players and trend riders. Reversion to mean trading techniques may become more widespread, further constricting movement.

    Personally, my difficulties employing range breakout methods should not be surprising in light of this. The market is a moving target and using the last six months data to form a method probably insures that the method is not useful now. Maybe time for me to check out the bollinger bands. What happens when everyone starts fading the deviations? Flatline?

    So what do you think. Do the current low volatility numbers mean that they too revert back to higher levels, or will volatility continue to shrink along with the number of successful traders, wrung out by program trading and channel bouncers.
  2. duard


    Volatility cycles just as prices.

    99- 03 very volatile, we're cycling through lower volatility. Many are predicting another year or two of lowered vol.

    But we had some nice volatility for several weeks when the last intermediate bottom was put in. Were you trading then?

    "Programs" and reversion to the mean strategies will also knock some vol. out of the market.

    You definitely need to adjust though. I took a trade a few weeks ago based on the lower volatility and just got clobbered cause it was the only big range day in the last few weeks. Always a reminder that every day begins anew.

    Good Luck
  3. I had this nightmare the other night.

    S&P, DAX, Dow, Naz were all flatline. Literally. Bid and ask were frozen, and only one side was getting hit, ALL DAY.

    But the weird thing, NOBODY ELSE seemed to notice. Traders kept chatting in the chat rooms, kept preparing their charts, analysts kept spouting their comments, and the Fed kept meeting, as though it all mattered.

    Yikes! Just recalling that dream gives me shivers ....
  4. This is all part of the "game". IMHO, you must view your trading career as a long term event, one that will be much more enjoyable if you simply not worry about the cycling of volatility. This is not to say that you shouldn't take into account volatility for your strategy or how you approach the markets.

    It is simply saying that nobody will know when or where volatility will pickup, and that the best thing you can possibly do is stick with your system through thick and thin. If you know that volatility is the only thing that stands between making some money and making alot of money, well, then, just relax! Stick with your guns.

    Now if you are losing money quickly in a market like this, and are only slightly profitable during a more volatile market, then you are doing something wrong. My traders, like many of you, are going through the same thing. The only thing you can do is simply stay in a rational thinking process.

    Just like duard said about the last intermediate bottom, there will always be cycles. Don't try to guess when or where, just let the market give and take on its own time. You will thank your mental state later! :)

    Good luck
  5. i believe this is a result of low commissions. if you have people who can bang out a profit with a one tick trade they will do just that all day.
  6. Good comments, scary thoughts and sage advice.

    I'm a little frustrated right now. The gold ring is always just out of reach it seems. Yeah in April I did well, and I feel really good about some new ideas for my system, but in the face of optimism and dreams of wealth and leisure some harsh reality is intruding.

    I do notice that the listed stocks are showing more life than the naz and although I've been a pure naz trader perhaps I should start playing those.

    Maybe I should just not trade or trade smaller until volatility increases again. Jeez this game is hard!

    I'll keep the dream alive......even if it kills me
  7. Prevail

    Prevail Guest

    Sure. If you need high volatility then you may need to implement a volatility filter which only trades in high vol periods.
  8. This is a shakeout.

    It could last another week, or another year.

    Who knows.

    All you can do to protect youself against it is to trade smaller
    as the market eats away at your equity.

    Getting bigger will finish you off in no time.
  9. If only it was that easy.

    Any such filter is likely to cause whipsaws (it will lag the state of the market) and also reduce overall system oppurtunity.

    The best traders in the world just live and trade through these periods
    and the best way to that seems to have something else to
    focus on in your life, not just trading.
  10. PeterF


    Know your trading methodology: if you know what your win % is supposed to be, how much you are supposed to make, how much you are supposed to lose, etc., then you know when to stop trading and have a good look at what is going on. Both discretionary and mechanical traders are allowed to keep track of such statistics. Those who trade without rules are left wondering.
    #10     Jun 23, 2005