Volatility is not good for traders

Many novice traders have the wrong impression that volatility is good for traders. My observation is: Volatility is the enemy of profitable trading.

Broadly, volatility is large range movements on both sides of the market – up and down. If markets are going to swing up and down both, traders cannot make money. Trading needs a trend to make money. Volatility is – Abrupt changes of direction and then large moves in the opposite direction. There is no trend. Therefore, the trader cannot take a position in anticipation of trend continuation.

Newcomers are thrilled at the idea of big moves, say, for the Nifty. When markets move 100 points up and then suddenly 100 points down, they think there is money to be made. The opposite is true. When we cannot judge the direction of the market, how can we even take a trade?

Big news days have large volatility. The best way to trade such days is to avoid trading. Think about this: out of 240 trading days, there may be 20 or 30 big news days. So even if we avoid trading, there are still 220 or 210 trading days to try our trading skills.

The first move is: keep your losses small. Avoiding trading on volatile days avoids losses.