Discounting Volatility

I'm not reacting to changes in volatility quick enough. Volatility died down this week as everyone waited for the Non-Farm Payroll figures to come out. This was also observable through choppier price action. And yet, I did not think much about reducing my position size or sitting out of trades.

Before I jump into my need to factor in volatility, here's a quick overview of the past week. After the consecutive losers, I slowly and carefully clawed my way back up.

EdgeWonk Performance Chart

Unfortunately, this was rather short lived as I also took some trades that simply did not play out. In fact, they drifted against me since momentum simply wasn't there.

EURUSD was exerting a very strong upside bias so I entered long as shown in the chart below. It hit the upper range boundary and I got out accordingly.

EURUSD 1-Hour

This signal was also backed by the daily chart where price was drifting lower. It was struggling very hard to make new lows, which was a great indication that momentum to the downside is gone.

The uptick in my EdgeWonk Performance Chart was largely contributed by my EURUSD trade. I did have a couple of other insignificant trades where I closed them around 1R.

I gave back some of the profits from a few subsequent trades that simply didn't work out. More specifically, they didn't work out because volatility was dying down since everything was calming in anticipation of the ECO releases. The costliest "mistake" of not factoring in this diedown in volatility occurred on the AUDCAD pair.

AUDCAD 1-Hour

As annotated on my chart, I made two attempts to short the downside price breach at the 0.93575 level. Neither attempt was successful.

Despite seeing the consolidation and resistance over on the daily timeframe as well, this breach was rather problematic because momentum didn't pick up.

If I were to take a rule-based approach to avoid making this mistake in the future, it's to avoid acting on signals where the price action came out of a whipsaw. AUDCAD was oscillating since March 27th where the price action was taking turns painting bearish and bullish bars.

Let's hope for a more consistent April.