Let’s talk a little bit about volatility. Volatility is something I think that is … can be over utilized and underutilized.
What do I mean by that? You hear people talking about volatility all the time. The $VIX in itself used to be a measurement of the options on the S&P 100. This kind of evolved over the time and I can’t even tell you exactly how it’s derived anymore. Therefore, as industries change, as the vicks has, it becomes a little bit different to … and difficult to analyze. Much like take information and much like prices in the S&Ps since they’re always discarding the old names that flame out in the S&P and bring in new names. It’s got an upward bias always. These things really are important to understand how they function.
One thing that I believe that we’re seeing as it relates to volatility right now is volatility is becoming more and more volatile even though we’ve been in a range here, most of 2013 where volatility, the index itself has been less so of a number and kind of hanging around that 12 or 13 area for a good chunks of the time, but then we get these very powerful spikes up to the early 20s for instance and then 2 days later we’re right back into the 12ths.
Understanding the context of volatility is as important as the number and I think because we have so much intervention between QE over the last 4 years and we have so much FOMC chatter almost say a dozen time a week we have different fat heads talking to us, we’ve got jobless numbers. We’ve got a litany and we’ve talked about this. We’ve got a litany of economic indicators and jobless claims, GDP, CPI, PPI.
The more that the government tried to intervene with free markets, I think what you’re starting to see is more and more people, more big money leave the market and what that tends to or where we’re kind of heading right now is we’re in a period where we get these great swing and intra day, week, month volatility, yet the number stays relatively low. Why is this important? Well it’s important to note because in environments like this, it makes it very difficult for very short term traders to trade with sides.
If you’re out there trying to scalp in a … in a volatility environment like we’re in, I’m in a state of mind right now where you have to be short complacency in long volatility. What do I mean by that? We’re in a state of market right now that I think people have been very comfortable with buying the dips. There aren;t really dips per say to buy that I would buy as a trader but it seems to me that the small short term money is buying any little pull back that they get and that’s been the case all year because of the winds behind us from QE.
Now, everybody I think is under the impression that rather not impression but they keep talking about taper and I don’t think a taper’s going to come. I think it’s already well into the cards that the fed and the money policies and the fiscal policy, the monetary and fiscal policies are such that they’ve painted themselves into a hole. They cannot stop printing money. The dilemma they have in the bond markets are already telling you this is that we’re starting to tick up in interest rates.
Part of the problem is that the debt that is compounding for the US government is so out of control now that the fed is now demanding congress and senate tax as much as they can, anywhere they can, however they can and that’s why you’re seeing so many laws changed worldwide into transactions that are happening across boarders because every country is in the same situation.
This printing of money is starting to come to route and I think you’re … if you have … if your long complacency and short volatility, the opposite of where we are, I think you really need to check yourself because I think we’re in a period now, especially 2014, 15, 16 through 20, that volatility is going to continue to explode and you’re going to see longer periods of time between highs and lows versus the shorter periods where we’ve kind of coming off a bottom possibly right now and overall long term volatility and these are just the first percolations.
I am long complacency and … or rather short complacency and long volatility here over the next few years. Are you ready for that type of change in your train? I can tell you that market profile in the Market Profile Trading Academy are tools that will help you with this. Please join us here at Mistrade Member, check out our Twitter feed option and our one on one education and our seminars with groups at the Mistrade.info website and please understand the context of the market that you’re always in and maybe where we’re transitioning.
Nothing goes up forever and nothing goes down forever. The transitional periods are very important in the nuance to understand those are quite important. Please check yourself. Again, we are short complacency long volatility at Mistrade.info for the next few years.
Hope to see you and hope that you join us here at the Market Profile Trading Academy.