If you haven’t noticed, the market has been very volatile. The only way you might not have noticed is if you weren’t trading. I have said over the past couple of weeks that I believe this market has made it difficult for swing traders (generally a 2- to 5-day trade) to make money because of the volatility. I have also said it might be prudent to take profits and cut losses quicker than normal under these circumstances.

To me this means looking for smaller profits and limiting yourself on the loss side too. For example, if you normally look to take a 50% profit, maybe consider taking a 25% or 30% profit instead. The market has been gapping so much that limiting your gains actually removes risk sooner. Remember, your main goal as a trader is to preserve your capital and be a risk manager.

The same thing goes for limiting your losses. Consider smaller contract size and risking a smaller percentage on each trade. So instead of risking 25%, consider 15%, for example. Of course, how you want to do this is completely up to you. Just consider this a general guideline to use.

As I like to say, the market is never “normal.” But there are times when it is more volatile than usual. This has been one of those periods, so it may be a good time to put on your risk manager cap just a little tighter. Good luck!

John Kmiecik, Market Taker Mentoring