That Was Quite the Risk-Off Move
Four Rules Worth Remembering When Everything's Moving at Once
Well, that was quite the risk-off move on Friday!
Everything that could get hit, erm, pretty much did…
It seemed to be a mix of:
- Jobs numbers being better than expected: Which made traders think we could see a US interest rate hike, not a cut.
(A hike is generally seen as bad for stocks, good for the dollar, bad for commodities.) - AI positioning unwinding: chips, memory, etc. Everyone’s been long; many wanted to exit a slice, and the exit door got very small…
- Underlying bearish stuff from Iran, tariffs, and some cracks in the AI theme appearing.
A bit of a perfect storm…
The question will be… what happens over the next few days?
WHAT NEXT?
ow, we don’t want to second-guess anything… but some golden rules we probably should remember:
#1 Volatility expands and contracts
Be aware of intraday volatility cycles.
Friday was pretty extreme, but Nasdaq in the RTH session had 5-min candle ranges from 28 points to 156 points.
So, just take that into consideration.
Is vol likely to expand or contract from your entry? (You ideally want expansion in your trade direction to really juice a trade.)
#2 Activity doesn’t always equal opportunity
We’re traders; we see shit moving, and we want to play…
But… just because it’s moving fast doesn’t mean there’s edge.
We need to pick our spots carefully.
Better to end the week with a handful of really good trades than a busy blotter and down on the week.
#3 Man who chases two rabbits, catches none
The old Chinese proverb rings true here…
When there’s a lot going on, focus on less.
You just want opportunities, not coverage.
And higher vol = more opportunities, so you can focus on fewer markets.
#4 “What’s the next sequence?”
Trying to catch the move that’s happening now often means you’re behind the curve.
It’s often better to think of the next sequence… A trend, pullback, flag, breakout? Or fakeout and reversal.
Thinking like this can help you stay patient, strategic, and focused on nailing those asymmetric plays.
There are 4 … What’s your #5?