In trading, it is said that the ‘trend is your friend’.
However, some traders are concerned about the recent increases in market volatility and the lack of trends on higher timeframes in some markets, especially the indexes.
But volatility can be your friend too – an equally great and profitable one.
This year, our hedge fund has been performing pretty exceptionally, and the recent increase in volatility is definitely helping us a lot.
Our hedge fund portfolio consists of 100% breakout strategies (created according to my own framework that I teach step by step in the Breakout Masterclass), and high volatility is one of the best things that can happen to breakouts.
Let me explain why:
- Volatility means movement and that is the key to breakout profits. The higher the volatility, the higher your returns can be. Breakout strategies do suffer in high volatility and choppy markets, but with a bit of skill, the right development framework, and good breakout strategies, volatility can become a great friend.
- Of course, you need to be on the right side of the market to profit from volatility. But, with breakout trading strategies trading both sides, Long and Short, it’s not a big problem. So, for example, if indexes are falling like hell, then the strategies trading the Short side usually make the most money. Short trading is something I can highly recommend if you want to stay in the game, even during wild times (in our hedge fund, all of our breakout strategies trade both Long and Short sides).
- In high volatility, you also need to work with a little higher risk, but that all depends: if your position sizing method is based on % allocation of your capital, and at the same time you increase your stop-losses because of higher volatility, then all you do is trade fewer contracts – which you compensate with higher profits per contract due to higher volatility.
So, if you really want to start profiting in high volatility, I highly recommend breakout trading. I can’t even express how grateful I am for the current volatility!
Of course, for that, you also need good breakout strategies (I share my breakout development framework in the FREE 14 Days Breakout Challenge) and exceptionally tough robustness testing to make sure your breakout strategies can survive everything, including high volatility.
I am personally obsessed with robustness – I could definitely be called a robustness testing freak – and my own robustness procedures are some of the toughest in the industry (if you follow them to the letter). Again, I share all my robustness testing procedures in the Breakout Masterclass.
Anyway, whatever your experience with high volatility is – why fight it when you can make it a good friend.
A GREAT friend.