How to still make money with automated trading during volatility spikes

I know I’m not alone when I say that the month of October has been pretty difficult to trade. Ever since the beginning of this month we’ve seen some pretty wild trading sessions. If you are quick, you can get in and out and make a decent profit. If you are using automation to trade the markets, it a different story. So, how to still make money with automated trading during volatility spikes? It is not impossible, you just need to be agile and stay on top of your strategies.

How to make money with Automation


The most obvious way is to have automated strategies that work when the markets are bearish. If your account does not support short selling, you can also look at using options to trade the downside. However trading options does require special permissions with brokers.

Bullish strategies haven’t worked well for me this month. Of the 17 bullish trades my automation have taken, only 5 of them closed profitably. However my bearish ones are 25/20 win/loss. While the numbers might sound bad, my automation is setup to close any short position 60 minutes after they’ve been executed, or the stop is hit, whichever comes first. Because of this, I’m actually net positive for the month by a far amount. My strategies use a risk to reward ratio of 2 to 1, or 3 to 1, hence my winning trades bring in a lot more then when my trade gets stopped out. 

Speaking of stops…

ALWAYS trade with a stop loss


If you are trading with automation, you have no excuse to not be using stops. A stop loss will help you get out of bad trades before its too late. During higher than usual market volatility you can employ different techniques to help you manage your losses with the stops.

stop loss
  • Use wider stops: If you usually use tight stops to have a higher risk to reward ratio, during times like this, you can widen your stop. Make sure the number of shares you are buying/selling is also reduced if you are widening your stops.
  • Fewer Shares: If you don’t want to change your stop loss, trade with a smaller number of shares than you would normally trade. Sure you won’t be making as much money if the trade goes in your favor, but you won’t lose as much either. Once market conditions are more in your favor, then you can go back to what you normally trade.

Use proper Risk Management


Trading isn’t about making as much money as possible. It’s about proper risk management. Evaluate your risk to reward ratio. If you are risking $100 to make $100, then your RR isn’t that great. my minimum is 1:2, and some of my strategies are actually 1:3. That means for every $100, I try to make $300. How does this help?

If I make 4 trades, 3 of them get stopped out for $100, but the 4th trade makes me $300, I’m still at break even, even though I lost 3 out of 4 trades. If you are using a 1:1 RR, you can see right away in this scenario, you are down $300. 

My trading robots are configured automatically to set my targets and stop losses at the very beginning. I’ve optimize my strategies with my stops and targets already set. Since I do all my automated trading with a software called Trade-Ideas, I can use their OddsMaker tool, I already know my risk management before I even get into the trade. 

Disable strategies that don’t perform well in this type of market


I’m partially guilty of this one. If I would have turned off 2 of my strategies earlier, I’d be up a lot more this month. Some strategies were not designed and simply just don’t work when the market is volatile like this October.  Save them for when the time is right and let them make the money when the odds are in their favor. Afterall automated trading is using past data to create trading systems where the probabilities are in your favor.  

Finally, don’t be afraid to take a break


If your trading strategies don’t work in this type of market, take a break. This goes for manual trading and automated trading. You’ve had a few killer months and made tons of money. Take some out and take a a couple weeks holiday somewhere. Treat yourself and when you come back nice and refreshed, you’ll have plenty of energy and probably some new ideas to work with.

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