In Search of Volatility

One the frustrations that I have voiced regarding the MultiStage Trading System is that I don’t have enough “exposure”.  I often go through long stretches without exposure to the market, and in all cash.  The good part about this is that I avoid some of the nasty reversals and market drops.  Cash can be a safe place at times.  At the same time, however, I miss out on many profitable moves.  In a system like this profits just trickle in. 

Don’t get me wrong, I’ve been trading this system (or some previous form of it) for years and I’m quite satisfied with the results.  But with average exposure at about 25% I always feel like I’m missing something.

As I’ve commented many times, my trading system thrives on volatility.  Some of the most profitable years are also the most volatile.  For example 2008, while awful for trend traders and most fundamental investors, was a banner year for this system.  The question I’ve been solving is, “What shall I do in less volatile times?” 

I have gone in search of volatility, thinking I might find volatile markets outside of equities that could replace typical equity trades.  The problem is I can’t predict volatility very well, and often by the time I get in, the move is over.  What to do?

Enter: MultiStage Trading System v8

I’ve been busily working away on a modification to the MultiStage Trading System that moves me in the right direction.  I am integrating a measure of volatility into the system and it will then modify candidate trades dynamically to take advantage of lower volatility conditions. 

This is a work in progress, but it looks promising and should increase market exposure.  Increasing exposure simply means more trades.  If you have a positive edge in the strategy, more trades = more profit.  Stay tuned for more details on the MSv8.

Good Trading…