Historically, the week between Christmas and New Years has low volume.
There are little to no earnings, traders are taking their vacations, and algorithms are taking over.
That doesn’t mean though that we aren’t able to make a life-changing amount of money this week.
But if you are planning on trading in a low-volume environment, you’ll need to follow the rules I’m giving you today to the T.
If you don’t, there’s a huge chance that a profitable trade turns into a big old loser.
1. Stick to the Big Names Out There
When you’re trading around the VWAP, you need volume. It’s called VOLUME weighted average price for a reason.
You need sellers and buyers fighting over levels so you can get an understanding of where a stock is moving.
If you don’t have this fight between buyers and sellers, a single trader can come in and completely ruin a stock’s trajectory.
That’s because that one trader has the volume alone to move a stock by themselves.
Unless you’re a seasoned veteran that understands how to trade small names in low-volume environments I would stick to bigger names out there.
Right now, I would look at QQQ — the ETF mimicking movement on the NASDAQ, Tesla Inc. TSLA, and KOLD or Boil — the ETFs mimicking the movement of natural gas companies.
There’s enough movement in these names that you won’t have to worry about getting caught out by one buyer making a huge order that completely kills the trajectory of the stocks.
2. Determine Your Risk and Set Your Stops
When you’re eyeing a trade to enter into, you need to set your risk ahead of time.
This is done by setting stops at a previous candle or major level so you aren’t caught out in a massive move in the opposite direction.
I usually set two stops of risk at the previous two candles so that I will get stopped out of the first half at the first candle and the rest at the second candle.
This serves two purposes: it allows me to lose less if it hits the second candle, and it allows me to make a profitable trade if the stock then goes in my favor after bouncing off the first stop.
When you have a low-volume environment, these stops are necessary so you don’t suddenly get caught out with no risk defined.
If you determine ahead of time that you will lose ten cents on a trade to potentially make 50 cents, you can lose five times in a row before you break even with that one winner.
If you don’t have these stops in place though, that potential 10-cent risk is potentially infinite, which will blow up your account.
3. Don’t Trade the First 15 Minutes of the Day
When the markets open and the opening bell rings, there are usually wild swings in both directions.
That means if you enter a trade at the opening bell you need to be lightning fast.
And by that I mean you need to be able to put your orders in, with just a click.
There is no hesitation here.
This morning for instance, in the span of 2 minutes, QQQ jumped up to $263.50, down to $262.20, and then back up through the VWAP through $262.50.
Bullish traders who bought at the opening got stopped out early and missed their profits.
Waiting to see what the market wants to do allows you to better define your risk and ensure profits for the future. Got any tips of your own to share? Have any topics you want me to cover? Shoot me an email at KennyGlick@MoneyMapPress.com and I’ll answer anything you throw my way.
December 28 2022