If you are a trend trader, in this kind of volatile market, you can actually do nothing, because the goal of trend trading is the trend after the end of the volatility. The volatile market has nothing to do with you; just wait, and the key is to ensure that you do not lose money, or lose as little as possible during the volatile market.
However, if you trade in fewer varieties and have a larger trading cycle, you may not have trading opportunities for a long time when encountering this kind of continuous volatility, which is particularly a test of patience. I provide you with several strategies to deal with this situation.
1: Reduce the cycle to trade in smaller trends.
Trends are divided into different levels, and now everyone is used to defining trends with K-line cycles, such as daily trends, 4-hour trends, 1-hour trends, and 15-minute trends. There is also a relationship between large and small cycle trends, with larger trends composed of smaller ones.
Therefore, if we are trading in larger trends and encounter a volatile market with no trading opportunities, we can reduce the K-line cycle and trade in smaller trends at a smaller level.
For example, if you usually trade in 4-hour trends, when encountering volatility, you can reduce it to a 15-minute level, and trade in smaller trends at the 15-minute level. I will illustrate this with a picture for everyone.
The chart shows a 4-hour K-line chart of gold, with the market maintaining a wide range of volatility between 2380 and 2300, and the duration of the volatility reaching a month and a half.
During this month and a half, gold did not break out, and traders need to wait for a month and a half, during which there will also be some losses in fake breakouts.
The chart shows randomly selected 15-minute K-line charts from five trading days during this month and a half. By using moving averages and trend line breaks in conjunction with long and short trades, there will be many trading opportunities and good profit effects.
So in practice, if you encounter a volatile market, you can reduce the level and trade in short-term trends.2: Engage in trading using range-based trading strategies.
Volatility often oscillates within a relatively fixed space, with distinct high and low points that can be used as support and resistance levels for range trading. Buy when the market tests the support level and sell near the resistance level, then reverse and go short, covering the position near the support level, and repeat this process to profit from the range. The chart shows a 4-hour candlestick chart of gold, which is the period of the consolidation trend mentioned at the beginning of the article. When the market consolidates and forms high and low points, buy high and sell low within these points to profit from the range and increase trading opportunities.
3: Increase trading opportunities by diversifying into more instruments.
The method mentioned above is equivalent to running two different trading systems simultaneously, which is challenging. There is a simpler alternative: trade multiple instruments at the same level. When one instrument is in a prolonged consolidation, others can supplement trading opportunities. For example, while gold is consolidating, one could trade stock index contracts as a supplement.
The chart shows a 4-hour segment of the A50 index, which coincides with the time when gold was in a 4-hour consolidation. During this period of over a month, the A50 index was consistently suppressed by the moving average, indicating a bearish trend. Trading in line with this trend can effectively fill the gaps in gold's consolidation trading.
Of the three methods, I recommend the third one more because the trading pattern is the same, the rhythm of time is the same, and the holding period is similar; it's just that more instruments are added. This means there's no need to switch the thought process in the brain, making the trading smoother and easier to execute properly.
