Intra-day Volatility Trades

Discussion in 'Trading' started by WittyMathGuy, Dec 27, 2007.

  1. I am new to the forum, and have found a lot of the information posted here quite interesting. I am currently not working and preparing to go back to graduate school.

    While I was off I wanted to try out some trading. Instead of trying to figure out whether or not a stock was going to run up or fall on its butt, I think it would be interesting to devise methods of purely trading on the volatility that seems to be quite high these days. Since the short trade rule was relaxed, stocks appear to be more freely moving up and down. I'm amazed to see swings of 2 and 3 percent (maybe more) become quite common. So, there has to be a good way to capitalize on these moves. I am really interested in any ideas you all might have, and any experiences from past trading strategies.

    I have a couple ideas so far:

    1. Place simultaneous long/short trades for a stock with relatively quick stops attached to them. Once one of them stops out, let the other ride till a predetermined or dynamic exit point is reached. This is meant to be intraday. So, nothing will be allowed to go overnight.

    2. Create something of a digital trade, with a stop and exit trade predetermined. The stop is half what the predetermined gain would be, including any associated fees. So, when the trade is closed it either gained a certain amount or lost half that. Then follow that up with a new trade that goes in the direction of the first. Shorting if it stopped, or long if it was profitable.

    These are just things I've been thinking about and would love to hear anything you might have to add, whether it be positive or negative. I think there is a real opportunity to take advantage of all this price volatility.

  2. IMHO, as soon as you expect these 2-3% swings to happen, they'll stop. Or they'll go the other way to what you expect. Maybe you'll come up with a system that works great under current market conditions, but will then lose money when the market changes, and you won't know it's stopped working until you've given almost all of your profits back.

    Not trying to rain on your parade, but things are never as simple as they seem in the markets. Best advice when developing a system: backtest, backtest, backtest. Make sure it works under (or adapts to) all market conditions before using for real.

    Good trading!