Q&A by Don Bright
SHORT-TERM TRADING IN LOW VOLATILITY
Don, with the markets traveling consistently higher and volatility continuing to drop, what is a short-term trader to do? When I get out of a good long position, I canít get that pullback to get back in. When I short a stock I think is about to reverse and go lower, the drop is very shallow and then I get squeezed out as it heads higher. Can you offer any insight as to how your traders are handling this low volatility?
By the time you read this, the market may (or may not) have sold off. This response is being written in early June 2014, with the market at all-time highs. The markets could be much higher or lower by the time this is published.
Let me start with some things not to do. Some traders are gambling on a major pullback in the markets ó and are consistently losing money. Thank goodness, not many are doing this. Another thing to avoid at all costs is going long any leveraged volatility-based exchange traded fund (ETF) such as UVXY. Even the sponsors of such leveraged ETFs warn traders that they are designed to be used primarily for daytrading and not for long-term holds. Will volatility come back? Probably. Will it be soon? Who knows.