How to Cope with Volatile Trading Conditions?

Find Stocks That Have Compressing Sideways Candlestick Patterns

Trading so-called “Volatile Markets” can seem like a daunting task. Many Retail Traders struggle during these phases of trading action, and do not recognize how to cope with “Volatile” Trading Conditions. The problem is not that stock price action is “Volatile,” but that few traders know why this happens, how to trade this type of price pattern, and when to expect the volatility to convert to sudden momentum action.

All sideways action, whether it is a Consolidation or a Trading Range, occurs because of a Shift of Sentiment™ which alters the balance of power within the trending stock or market. See the chart below, an excellent example of volatile action as a Shift of Sentiment is unfolding.

“Volatility” is a loosely used term for a broad variety of sideways candlestick pattern action. It is rarely defined adequately so that traders can determine how, when, where, and what to trade. That leaves many traders frequently frustrated because the modern automated market often moves sideways.

Volatility is nothing more than up and down price action that, if not fully understood, can and does cause the common “whipsaw” trade that causes traders to take losses, only to watch the stock move again afterward.

There are many “blame games” that Retail Traders are taught. “Market Makers” as the cause is the most common blame game, which is really a myth because over 95% of all retail trade orders never make it to the exchanges nowadays, but are filled by your broker from their inventory.

The point is that blaming anyone or anything is simply a waste of time. Instead, the focus with “Volatile” Trading Conditions should be the following:

  1. Identifying early that a sideways aka Volatile Trading Condition is about to occur.
  2. Determine why this Trading Condition has occurred, or is about to occur.
  3. Analyze the Price action to correctly choose the breakout direction.

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Trade Wisely,

Martha Stokes CMT

TechniTrader technical analysis using a StockCharts chart, courtesy of StockCharts.com

Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses

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