11 Minute Read

Tackle Today: Heed the Volatility Cycle

November 16, 2021

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Tackle Today: Heed the Volatility Cycle

≈ Expansion and compression.


Did you know volatility moves in cycles just like price? It’s actually even simpler, consisting of two phases: expansion and compression. Here’s the gist. Prices move between periods of expansion and compression. Big moves are followed by small moves and vice versa. There can be a fair bit of noise along the way, but ultimately these are the two primary phases that volatility traders care about.

Volatility expansions are what occur during breakouts. When prices depart a consolidation zone, they usually see strong momentum – like a coiled spring that finally releases its pent-up energy. Think of the recent breakout and surge seen in the Russell 2000 Index. Alternatively, after a stock has made a large move, it typically runs out of gas and treads water for a while. The expansion ends, and compression begins.

Notice what we’ve seen over the past week. Overbought and otherwise extended indexes paused for a breather. They didn’t pull back aggressively, nor did they keep ripping.

The ideal delta-neutral, volatility-based trades take place at turning points of this cycle. Iron Condors are best placed as an expansion gives way to compression. And, long strangles and other bi-directional trades are most attractive when a period of compression is morphing into expansion.


Upcoming YouTube Webinar: Swing Trading 101 with Matt Justice – November 22nd 2021, 8:30 PM EST

Join Coach Matt Justice in this fun and informative webinar that will teach you everything you need to know on the art of swing trading. Attend this event to open your eyes to the real income potential of options trading and stock trading.

Topics Covered:

✅ What is Swing Trading: Definition, Types of traders, the 3 Steps to Swing Trading and the 3 pillars of Swing Trading

✅ Types of Trends

✅ Uptrends: Price cycles, higher highs and higher lows, Core 123 pattern

✅ Downtrends: Price cycles, lower highs and lower lows, Core 123 pattern

✅ Support and Resistance

✅ Swing Trading System Rules

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Chart of the Day: Consumer Staples ($XLP)

Chart of the Day: Consumer Staples ($XLP)

The Consumer Staples sector (XLP) broke out on Monday. ‘Twas only a few pennies, but still. Check out the diagonal spread built during the Options Report video if you want to see how to lever up and generate some sweet cash flow returns.

Video of the day: Gino’s Gems – $ARHI3M-$ARLO3M Thinkorswim Indicator (ARCA Exchange)

In today’s Gino’s Gems, Coach Gino Poore talks about one of his all-time favorite #technicalindicators on #ThinkOrSwim: The $ARHI3M-$ARLO3M. This indicator measures new highs made minus the new all lows for just the past 3 months on more than 8k stocks traded on the ARCA exchange. It consists of a trend strength indicator that shows who is really winning the battle: the bulls or the bears. Check it out!

Today’s line up

Tales of a Technician: When do I Buy Stocks for the Long-Term?

We’re having all sorts of fun in the Team Phoenix Discord channel and I wanted to elaborate on my answer to one of the questions I received from my pal Mohammed.

The gist of it was this: “When is a good time to add stocks to my long-term portfolio, and what is your suggested strategy?”

Traders Lounge 11 PM EST

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This is our weekly MasterMind group. Join the coaches tonight, 8:30 PM EST to discuss the markets and help you prepare for the week.

Halftime Report 12:30 PM EST

The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day, and fun in a way that only Matt and Tim can deliver.

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