Keys to Trading in Volatile Markets

Today on The BubbaShow, Todd notes that when there is trouble, the world turns to the U.S. Treasury bonds for financial security and the U.S. armed forces for physical security. Many investors believe that Gold will give them security but during recent market turmoil triggered by the devaluation of the Yuan it was not a haven for financial security. In fact it lost value and sunk to multi year lows among the turmoil. 

Bubba believes that it is important to observe the markets. He notes the day before that the market was down 400 DJIA points in the morning and rallied all the way back. He believes that you shouldn’t fear this type of a market but rather you should embrace it and realize that the volatility gives you opportunities if you know how to handle this type of trade. Bubba maintains that the market action creates forgiveness if you are wrong.

Bubba comments how support and resistance levels are the keys to trading volatile markets. He shows how the invisible lines are used by traders to trigger trades. It doesn’t matter if they are a self fulfilling prophecy as some fundamentalist claim. The “other side” of the trade is looking at the same thing and they are also going to react when they see the pattern form. It is not only important to know your position it is important to know your opponents. 

Bubba talks about earnings and how you can tell their approximate range by the volatility in the options. He uses Apple as an example and notes that the market makers ramp up the air in the balloon prior to earnings. He gives an example of volatility and how you can make or lose money on an option depending on how the volatility expands or contracts the asset need not move.