Today, one of our clients contacted us concerning the difficulties they are experiencing trading the current market, and no doubt, the last few months have been relatively range-bound and choppy; indeed, there seems to be a lack of continuous directional daily momentum but that doesn't mean to say there aren't any opportunities out there worth exploring.
Martin, these Federal Reserve FMOC Meetings and Jerome Powell interest rate debates have become tiresome over the last few months. It's causing the market to have a lot of directionless chop and it's been very hard to trade.
There are various strategies we have been deploying in different trading teams from Condors and Iron Flies to News Driven Stock Interests but in this post, we'll take a look at what we have been doing in the daily VWAP Index team, how we trade and step through one of our daily reviews.
Please note this is not investment advice, nor are we advocating that any of the strategies we describe in any of our posts are suitable for meeting your individual investment objectives; we're just going through one of our trading approaches.
Shorten the trading horizon
The trading / investment challenges of 2022 can be summed up as being quite simply, a market that has high levels of daily irresolution — the indexes haven't pulled back far enough to make hedging useful but such risk management methods are super expensive all the same. Rallies seem to be short lived and intraday volatility, often a direct representation of uncertainty has been relatively low. The UVXY, a measure of the first and second month VIX futures has been below $15 for the last couple of months but there is no bull market to explain why UVXY is so low, it all just remains trapped and nascent at best.
You only have to take a glance at the performance of hedge funds, in general and it will be fair to say 2022 is probably a year many of them will want to forget. For the banks, some investment banks are experiencing revenue pulling back as much as 47% reports Bloomberg [LINK] and that's enough to see head count reductions being considered on the gloomy agenda for next year. If you are a swing trader, it's lethal out there. If you are a mid-term investor, you will have become an accumulator lengthening your investment horizon as each week of indecision draws out to become another week of hope.
Conversely, why not shorten the trading horizon to avoid these price spikes from intraday news rather than lengthening it in the hope of growth, and many traders we are working with are placing much more emphasis on short-term setups over strategies that require them to hold assets on their books.
Daily write ups
Index Option Enabled VWAP Strategies are a high gamma trading style that we employ in the Causal Capital VWAP team, and in doing so, we carryout daily write ups and trade reviews each day of the week.
This is an important trading approach that works well under all market conditions where many other strategies fall foul of choppy markets, VWAP Strategies ...
▨ Tend to cope nicely with short term trading horizons
▨ Are entirely Risk Defined
▨ Do not require traders to hold positions across long time periods
▨ Can still be profitable if the market becomes volatile
▨ Are traded under a strict set of rules that can easily be followed
▨ Are individual stakes with their own risk reward dynamics that do not form part of an investment portfolio
and while explaining the VWAP Strategy Rule Set is beyond this blog posting, the write up presentation shared below will give you insight into how the Technical Trading strategy kind of works.
Martin's Economic News Trade Review Week | LINK
In the coming months ahead we will post additional Trade Write Ups and we'll also delve into some of the more nuanced aspects of our trading strategy. If 2022 has taught us anything, it would be the way it rewards those who are agile, those who are able to adapt their thinking to shifting market conditions. As the new year approaches, it would be fair to say that order of the day is likely to continue.
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