Strategies and Considerations for trading with the Power Emini Momentum System in Extremely Volatile Market Conditions
This past Thursday Russia invaded Ukraine. Prior to that the “volatility” had already expanded considerably (as I’m sure you’re aware).This means the the ATR’s and “ranges” in the market have also expanded. That’s a little bit different than “volatility” but it’s the same sort of thing.
What this means for the Momentum System is that all the numbers get bigger. The stops are wider and the Targets are waay out compared to ATR’s in more normal market conditions. So it makes sense to adapt our trading to compensate for the increased risk – and reward.
I received an email from one of our users that presented an interesting idea – finding a way to “determine which alerts are most likely to work” – and which might have a greater chance of getting stopped out. Honestly it’s a pretty good idea. If we had a way to assign a “probability rating” to each individual alert – we could adjust our position size based on increased or decreased odds.
Here’s the user email
The market has been very volatile. It is difficult to gauge what the market is going to next. But if at all possible, it would be nice to know depending on the probability to position size. Getting in the right probable direction it may help to buy more numbers of contracts and if the market is not in the right direction to buy minimal number of contracts. If the trade alert is not on the overall side of the major trend, less contracts should be traded. Again just a thought.
Here’s my email reply
I was thinking about what you said – potentially adjusting position sizes based on “market conditions” and the possibility there might be a way to determine the “probability” of how any given alert might work out – and it gave me an idea. With market conditions so volatile and the ATR’s / ranges so wide – it might be reasonable to do something like this:
Take the 1st alert with the smallest / your minimum position size – and if that gets stopped out – scale up on the 2nd alert. My thinking is that we’ve seen frequent “fake outs” early in the session where the price moves in one direction, then reverses and the primary move for the day occurs in the opposite direction.
Today was the perfect example. The first alert of the day hits the stop, then we get an alert in the opposite direction that goes on to hit both targets.
The downside to that idea is a week like this week. Only today would that have benefited you. Here are the alerts this week:
This past week demonstrates the benefit of holding for Target 2. Skipping the sell at T1 and shooting for T2 could improve the results on any given week too.
But the main thing is that any “adjusting the position size” falls more within “strategy” and discretion – which we encourage – but I’m not sure how we could program a “probability” into the software – that would indicate which individual alerts are going to stop out and which “we think” have a better chance to go on and hit the targets.
With that said, we are always looking to improve on the algo. And I’m already thinking about what type of logic would give us a “probability rating” on any given alert – and I’ll continue to think about it.
Thanks for your feedback and keep me posted on your experience with RTY since you mentioned you trade it and it’s included now in this new version.
Have a great weekend.
Tips for dealing with volatile market conditions and huge swings in the market
If you look at the stops and Targets in the image above, that’s some serious “range expansion”. And we’ve been seeing this type of price action for weeks now, which is atypical compared to more normal market conditions. This volatility is the result of worries over inflation, the Fed winding down stimulus and raising interest rates as well as the concerns leading up to the crisis in Ukraine. The market has basically experienced higher volatility since the beginning of the year.
In this type of environment the numbers on the trade alerts expand too and can seem HUGE. But the Momentum System has always been calibrated to adapt to any type of market environment, using the current ranges and ATR’s at the time. So as the market swings get bigger, our alerts shoot for bigger gains – and the initial stop tends to be wider.
Last Summer we were seeing Target 1 in roughly the 3-5 point range and Target 2 in the 8-12 point area. There were actually 6 days where no alerts filled all session because the price movement was really dull. The point of this is that we know market conditions can vary drastically over time – and we know The system adjusts to it.
However it makes sense that we might look for ways to adapt our trading style to compensate for increased volatility / risk / reward when it presents itself.
There are plenty of ways to do this. The most basic and simple would be to “skip trading a particular alert” if we see something on the chart that leads us to believe the market might have less of a chance to get follow-through in the direction of the alert. For instance, sometimes the Trigger Range starts off extremely wide – which indicates what we’d expect expect for that session – significantly wide stops and targets. In addition, sometimes we see a “fill” or Entry Confirmation that is way outside the Range, and perhaps the market has already made a big move before the system gets “triggered in”.
We could choose to avoid an early alert that day – and perhaps wait for some time to go by and get a better feel for the price action. After all, there will be days where we might have a Doctor’s appointment or other engagement where we’re away from the desk and not able to trade. It goes without saying that we’re not going to be able to trade every single alert the system gives – because we have other commitments in life. So choosing NOT to trade an alert is a discretionary option.
We also have other ways of dealing with unusual volatility – and other “discretionary strategies” we could potentially use.
1) Trade smaller position sizes – maybe just trade 1 micro contract until things settle down.
2) Use different scaling techniques based on market conditions – like maybe trading 2 contracts on the first alert of the session, and if that gets stopped out, increase the size to 3 contracts on the next alert.
3) Use tighter stops than the system provides. The stops are programmed to be consistent with the current ranges / ATR’s in the market at any given time, but that doesn’t mean we can’t choose to use a tighter stop – say the middle of the Trigger Range instead of the opposite side (as the initial stop). But keep in mind there will be times you would get stopped out only to watch the trade alert play out as hoped and hit the targets.
We could arbitrarily use a fixed stop – say 12-15 points as a MAX stop. But look to re-enter the trade if the price action re-triggers at the original Entry Confirmation.
So there are many things we can do to help mitigate risk when the market gets “crazy volatile”. There’s an article in the Power Emini Help / documentation that takes a deeper dive into all this and offers more ways to deal with extreme market conditions.
You Won’t Find An Easier To Use Trading System Anywhere – Trade it Purely Mechanically
The Power Emini Alert Software gives you an easy to follow – highly accurate trading system.
Entry Price – Trailing Stops – Dynamic Targets
Get started right now by clicking below and set yourself up for success in 2022:
Everything is included – Scalper and Momentum – Ninja 8 indicator – Free Upgrades. There are no upsells and nothing else to pay. Start Getting the Alerts Today.
PowerEmini Automated Alert Software For Day Traders
NOTE: The Alert Software is a platform independent stand-alone Windows Desktop app – you can trade the alerts with your current broker and platform.