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E-Mini Volatility Increasing by End of November?

Back in August of this year, you can probably recall the increase of volatility in the ES (E-Mini). This jump in market activity was caused by elected U.S. House and Senate members attempting to reach a debt consolidation compromise. With each side of the political spectrum preferring a different resolution, a deal was formulated in the 11th hour to manage the $1.2 trillion dollar debt reduction plan. On November 23, 2011, the debt ‘super-committee’ is to finalize this spending cut plan that is to go into effect January 15, 2012.

Considering the uncertainty of Greece and the Euro, there is a good chance the ES and other markets may become even more frenetic as November 23 approaches, depending on the action (or inaction) of the super-committee.

At Day Trade to Win, our primary method of determining a market’s ‘tradeability’ is the ATR (Average True Range) value. Using the ATR of the last four bars provides a real-time look at current market conditions. During the deliberation of the compromise (and for some time after), markets reacted with the ATR (Average True Range) hitting 9 or 10 points regularly. By comparison, for several consecutive months prior to the congressional negotiations, E-Mini traders experienced a relatively lackluster year with the ATR remaining under two points consistently.

As rule of thumb, the E-Mini natural ATR range on a five minute chart is between two and three points. Activity above three points is considered to be moving at a good clip, however, at five points or above, expect chaotic volatile action. It is always best to stay out of chaos. Any time the ATR is below one point, consider the market dead and not worth trading.

While a reasonable amount of volatility improves the trading experience (preferably two to four points), such high volatility makes for difficult trading. For example, a volatile day can be just as choppy as a less active day, with no clear direction (trend). When the market swings widely back in forth in such short periods of time, stops (and profits) are hit in a wild manner. Since we are retail traders (not robots), we must have time to gauge price action then act accordingly.

Let us know what you think…

Are these last-minute dealings of the super-committee meant to affect markets in the same way additional ticket sales are a result of stretched final game series in sporting events?

Is there a reason for the possible upcoming volatility other than ‘uncertainty’ such as political jockeying?

Will standard, market-influencing reports such as those dealing with employment and real estate have less of an impact than normal due to the breath-holding surrounding the November 23 deadline?

Are any E-Mini traders planning to buy the ES now and hold for several months in hopes for a sizeable, early 2012 profit?

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