Yes, volatility is back, and why you should care….
Volatility is a fancy statistical term for the amount of uncertainty about the size of change in something’s value. And that was me trying to say what it is in a very simple way. Even I had to read that twice, and I know what I meant. To oversimplify it, higher volatility means that there are greater chances of big price swings, in any direction. Lower volatility means boring markets. We’ve been in a low volatility environment in the markets for quite a while now. That’s not good for those of us relying on large price swings to make money, in other words, not good for us traders.
As of the last week or two, volatility has reentered the market and I, for one, welcome it back like the prodigal son. Last week, the S&P 500 dropped a massive 10% in value, bringing it back to lows not seen since… a month ago. But this prompted the VIX, also known as the Fear Index, to suddenly wake up. That made VIX traders, since the VIX is traded as if it were an actual security, lose incredible amounts of money when it surged by more than 100%. To give you an idea, that was the largest rise in the VIX in decades, and they should have seen it coming.
Volatility had been uncommonly low for a long time, and that is not the natural course of things, as traders should know. Good traders would have been making money on rising markets (when in a bull market, buy), but at the same time should have been wary of the cycle ending (all things come to an end). Additionally, the cryptocraze, with everyone and his idiot uncle thinking they could make money hand over fist indefinitely, certainly didn’t help things along. Bitcoin alone has dropped from its all time high of close to $20,000 all the way down to $6,000, and is now hovering around $10,000. The funny thing is that the crypto-enthusiasts see that as a good thing, whereas calmer and wiser heads still see a 50% drop in Bitcoin and that it’s likely never to recover back to its all time high. And certainly not going to $100,000, or the even wilder claims of it going to a million.
One has to wonder at the mathematical capabilities of the crypto-people, and where they thought all that money could possibly be coming from. Bitcoin is by design capped at 21 million coins, which times 1 million per Bitcoin, that’s 21 trillion dollars. From where, Narnia? And don’t even get me started on all the Ponzi people doing ICO (initial coin offering) after ICO to fleece dupes. But I digress.
Volatility is good. It means the era of low interest rates is coming to an end. It means currencies will start moving beyond their range-bound constraints. This will provide enormous opportunities to trade the Forex for higher profits than we’ve seen in more than a decade. It has to be done safely, though, and with a plan. Do you have a plan? We’re here for you if you need help.
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Andres Pedraza
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