Hey y’all,
I was tuning into this morning’s Opening Playbook session today, and I thought I’d pass along what I learned.
First of all, if you’re not aware, the Opening Playbook is an incredibly valuable 10AM daily briefing from Nate Tucci and Graham Lindman. It is a great place to start your day and get oriented to what’s going on in the market.
You can see a replay of today’s session here
Sometimes, Graham and Nate invite on special guests, and today was one of those days: Kane Shieh joined the fray to give a lesson on volatility.
Now, you probably know that volatility is finally back down at a stable number, as it dropped below 20 to kick off this week…
But we also know that volatility, by its very nature, can rear its head unexpectedly.
So Kane gave a lengthy talk on volatility on today’s Opening Playbook, so that traders can be prepared when it comes back.
And I was fascinated by one thing that he said.
Kane talked about how volatility is like a light switch for the markets (I’m not sure he actually used those words, but that’s the image I saw in my head).
An increase in volatility “switches” the market from a swing trader’s market to a day trader’s market.
What does that mean?
Well, when volatility is low and the markets are stable, swing traders and long-term traders are king.
They can comfortably sit back, day after day, and know that over the long haul, their investments are in really good shape and they’re making money on their money.
Think about the markets back in 2024.
Sure, there were some dips along the way, but overall, if you’d bought stocks in January and held them until December, you’d be very, very happy with your return.
At the same time, those markets bore day traders to death.
The opportunities are minimal, and the chances to cash in on sudden swings are few and far between.
As soon as volatility ticks up, though, the switch flips.
Suddenly, long-term traders are extremely uncomfortable, and day traders are in their element.
Day traders have plenty of opportunities to take advantage of quick swings in short time frames, and “buy and hold” investors are watching their portfolios swing wildly one way or the other.
So if you’ve been uncomfortable over the last few months with volatility elevated, it’s probably a good indicator that you’re a long term, buy and hold or swing trader.
If you’ve loved every second of it, day trading probably comes more naturally to you.
That’s just a taste of what Kane had to say. There’s a lot more substance I don’t have the space to go into.
But I do think it’s a really valuable lesson.
Everyone is going to have their strengths. But in trading, I think it’s important to hone your weaknesses, too.
Even if day trading is never going to appeal to you full time, you should be aware how to trade in short and mid range time frames, especially when volatility is high. You need to be able to tap into that when the switch flips.
On the flip side, if you LOVE day trading, you still need to be able to take advantage of long extended rallies.
Buying and holding stocks may not always be sexy, but you’d be insane not to when the market is as hot as it was, say, in 2024.
Hope this quick debrief has helped you understand volatility a little bit better. It certainly helped me.
For more, catch the replay here.
To your prosperity,
Stephen Ground
Editor-in-Chief, ProsperityPub
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