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When Calm Markets Become Difficult
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Many people assume quiet markets are easier to trade. But the opposite is typically true.
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When volatility falls, option premiums usually fall with it. And when the broader market is slowly grinding higher rather than making large moves, there are fewer obvious opportunities to exploit. A fast-moving and volatile market can give traders an edge.
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And that’s relevant to the way I trade. As a mean-reversion trader, I’m constantly looking for markets that have moved too far in one direction. That way, I can take advantage when momentum reverses and a stock snaps back the other way.
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But you need movement to create those opportunities. When the S&P 500 is slowly grinding higher with a calm VIX, those setups become much harder to find.
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And even if a promising setup unfolds, the potential reward might not be adequate for the risk you’re taking on. That’s why I’m less active right now than I usually am.
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As traders, our job is not to trade for the sake of trading. We should put our capital to work only when the odds are tipped in our favor.
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Tune in to Trading With Larry Live 
Each week, Market Wizard Larry Benedict goes live to share his thoughts on what’s impacting the markets. Whether you’re a novice or expert trader, you won’t want to miss Larry’s insights and analysis. Even better, it’s free to watch. Visit us on YouTube to catch the latest! |
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Why Low Volatility Never Lasts
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Market conditions never stay the same forever. And right now feels a bit like the calm before the storm.
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I’ve traded through enough different market cycles to know that periods of unusually low volatility eventually give way to periods when volatility picks up. And that often happens when you least expect it.
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I expect volatility to pick up as we move into the remainder of the year. There’s no shortage of potential catalysts.
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Inflation sits well above the Fed’s 2% target. Interest rates remain uncertain. Treasury yields are elevated. And after the market’s strong run, valuations feel stretched. Any one of these factors could shake the market out of its complacency and trigger a correction.
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Most investors don’t look forward to market corrections, but traders have a different take. Corrections can create some of the best trading opportunities for significant profits in a short time.
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Stocks start making bigger moves, volatility rises, and option premiums increase. Markets also start overshooting in both directions. That’s the exact type of environment where we can put our trading strategies to work.
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We don’t need to know what the catalyst will be. But from over four decades of trading, I do know that markets don’t stay this quiet forever.
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In the meantime, we’ll be patient and not to force trades. That way, our capital stays intact so we can really take advantage when volatility returns.
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Regards,
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Larry Benedict
Editor, Trading With Larry Benedict
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P.S. Today’s the last day to watch the replay of my AI Retirement Reset event. In it, I shared a ticker I believe will sit right in the path of a flood of money that’s moving from the typical AI stocks into a whole different sector.
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