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Four Tips for a Post-Volatile Market

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Adaptability is key.

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After months of extreme volatility (e.g. massive one-day moves and a VIX that loves to hang above 60), the market seems to have taken a chill pill, at least for the time being. This doesn't mean there's a bullish or bearish bias - but it's worthy of our respect and flexibility.

As long as the market has remained volatile, I've adapted by becoming a day trader. Some days I enjoy the grind; other days, I loathe it. Never have I regretted the switch, however, as it has kept my clients, and me, out of harm's way.

For the first time in what seems like ages, I've once again started to swing-trade a bit with reduced sizes, longer leashes and longer timeframes. My feeling is that the volatility we're seeing now comes from traders stumbling over themselves in a continuous attempt to look for the next major move. This worked until just recently. Now it seems the monster moves have stopped -- at least temporarily -- and we're trying to find some order.

So what's a trader to do?

1. Stalk those setups that appeal to you and your style.

At present, I'm watching and playing many steel stocks, some of which have already had big moves and look to be consolidating for another run. I'm focusing on those that are already above and holding their 50-day moving averages, such as Companhia Vale Ads (RIO), Cliffs Natural Resources (CLF) and Reliance Steel (RS). Each of these has strong multi-month bases, is showing relative strength, and is consolidating after bottoming-type moves. With stops on clear breaks of the 50-day moving averages, my risk is defined - and I'm willing to give them this leash.
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Positions in RIO, CLF, RS

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