I used to think that to be a trader, you had to be at the screen all day. There is some truth in that. Early in my trading career, I put in my time. I would watch, study, and chart for over 10 hours a day. I was obsessed with breaking down the markets. Over time, I would say my process and my “work” has evolved and aged.
Before i'd wake up, turn on the charts, and i wouldn't leave until the closing bell. I thought more screen time meant more opportunities. more work. While there is some truth to that, now my screen time is for other uses.
What changed is I learned quickly all it got me was more losses. Trading in “dead zones” and times, getting chopped up in the midday noise, and forcing trades out of boredom. I was the machine gunner firing all day. During this period as well, I was all “over the place.” In the sense of, I was trading many different markets. I wanted to trade anything. This is a necessary phase you have to go through as a trader to develop I believe. With this, you can run into a lot of what is called “drift”. That really can cloud and swing your PNL big time.
The truth is, your edge does not exist 24/7. It can’t. The market is never wrong. it goes through trends and periods of consolidation. Basic Dow Theory isn’t really a theory. Things go up and down. Understand in this game, you don't get paid for your time. you get paid for your timing. It is that simple.
To introduce this chapter, I want to discuss how I would approach an anticipated volatile day. I think as traders we really consider them to be our “Super Bowl” or “Playoffs”. They are on everyone’s calendars. Everyone is watching. Trying to determine which side is going to win. These days could be FOMC meetings and other “Red Folder News” events. In the current day we live in and “today’s market”, I would even extend this out. With politics affecting markets more than ever, anticipated political events or press conferences can fall into the category I outlined above.
**A good resource for ‘Red Folder News Releases’ is Forex Factory. They have a calendar mapping out all upcoming major important events for all international markets.
News: The Double-Edged Sword.
Major news events (CPI, FOMC, NFP, etc) are volatility spikes on steroids. The market knows its coming. These volatile events bring more volatility. Basic stuff. If you have any surface level options knowledge, you would understand that options are more “expensive”/higher premium on more volatile stocks and periods. The market attempts to “price in” the expected event. Markets in this case almost function like “prediction markets” where binary events can be priced in via auction by individual traders.
Since there is more volatility, they offer massive opportunities. Since futures are “fixed” on a per $/point basis, speculating is cheaper in futures vs options. Options are going to have that inflated premium. Prop firms become an even better bet. You get a smaller fixed risk (in reference to the evaluation cost) vs having massively tailed bets on outright futures.
Prop firms know this. Many of them restrict trading around major news events. You should know if the firm you are trading at has a news rule or restriction. With some harsher rulebooks, violations can be a breach of your account. They're doing it to protect themselves, and in doing so, they are protecting you from yourself.
Prop firms duck for cover. They want to limit or entirely cut off “right tailed” payouts. They don’t want to payout large sums. News events where traders can get lucky and pick the direction correctly racking up large payouts. Consistency rules are another way firms try to limit for outlier single day PNL days. In reverse, you can think about a consistency rule the downside (into drawdown) would be the “daily stop limit”.
Here's my personal rules (and some notes): you do not trade the number. you do not gamble on its release. your edge is not in predicting the data. It's in reacting to the market's response. I wait for the chaos to settle. I wait for a clear direction to emerge. The news provides the volatility. Really, your job is to have the discipline to not click any buttons.
While I don’t personally trade news, I recognize what value it could have in the right scenarios. With firms with news rules in the evaluation stage and 1 day to pass, you can utilize these events to pass eval accounts. This is if the firm allows it and if it makes sense in a bankroll view, I won’t ever recommend or personally partake in any news trading in the funded stage. That is gambling, not trading.
Awareness of your firm rules is the key here. You have to know your firm’s rulebook like the back of your hand. Don’t take risks you are not paid for essentially is the message. You should be adequately compensated for the risk you put on.
Since oftentimes these days bring bigger, larger trend moves, I typically like to “step in front of the bus” and look to take a few scalps in the direction of the larger trend. I like to come to the table when the dust has settled. I use these days as days to take less risk. I don’t want to get blown out from a single position or trade. Breaking this apart, it's because of the reduced size and risk. I size down on these event days. The volatility will remain elevated. You must adjust your risk parameters. Using a wider stop-loss to avoid getting wicked out on a good trade, and reduce your position size to ensure that a single losing trade does not violate your daily loss limit. The volatility introduces a complexity aspect to props that has to be respected and accounted for. I try my best to get in and get out on these days.
The last thing I'll add is the obvious one I ignored for too long. Timing edges are earned by deciding when not to trade as much as when to trade. you don’t get paid for the hours you sit. you get paid for the minutes you execute well. The market doesn’t owe you a reason to click just because you’re at the screen. decide your trading windows ahead of time, tag the day, adjust size to the tape, obey the firm’s rules, and walk when it's time to walk.
PART III: BUILD YOUR FRAMEWORK