How to Scan for Volatility Breakouts with Volatility Visualizer

How to Scan for Volatility Breakouts with Volatility Visualizer

Volatility Visualizer is a charting tool for Thinkorswim with advanced scanning capabilities to narrow down a subset of trades we believe have the highest probability of breaking out from their present channel.

Here’s how to scan for volatility breakouts with Volatility Visualizer

When symbols trade outside the weekly expected move, labeled on the scanner as “true” and inside the monthly moves “true”, these are the subset of trades that we should consider for a breakout trade.

Before entering a trade, all traders need a real reason for being in that trade. A trader should be able to answer two important questions:

  1. Why did you enter the trade?
  2. What is the intended outcome of the trade?

This is probably one of the biggest issues we see traders struggle with. Trading without a plan is akin to gambling. Every position needs to have a specific role, or serve a specific purpose, within the portfolio.

Once it's done its job, it can be liquidated.

Short term trades are most often used either for:

  1. Hedging a portfolio of stocks
  2. Short term speculation.

We encourage traders to consider more analysis before settling in on a trade.

Here’s how we think about adding more risk:

BEFORE opening more risk, do the following:

  • Analyze how the position fits with your portfolio
  • Model the worst case scenario and ensure you're comfortable taking the risk
  • Develop an opinion on where you think the trade will go so you can formulate a plan

EXECUTE the trade:

THEN, immediately after being filled, we suggest leaving the GTC limit orders to sell some of your units, no more than 30% of the total position, at a level where you can fully recover your cost basis.

After this, it's free trade.

These are the rules we try to follow and stick with, the same rules that have led to any success we've had trading. We can't really manage money any other way. While this is what feels right for us, no means is the only way to go about it. It's just the way that gives the least amount of friction.


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