January 07, 2025 | Read Online

Don Kaufman here.

Welcome to the jungle!

If there's one thing you take away from today's session, it's this: we're in a two-sided market, and volatility is the king of the castle.

Forget those straight-line bull runs or the relentless bear slides—this is the age of chaos, where the markets whip higher and lower like a caffeinated squirrel.

And if you're not ready to adapt, well, you're cannon fodder. Let's talk about how to not only survive but thrive in this kind of environment.

What Is a Two-Sided Market Anyway?

A two-sided market is exactly what it sounds like—a market where there's no clear direction.

One day the S&P 500 is ripping higher, and the next, it's giving all those gains back (and then some). It's like Mr. Toad's Wild Ride at Disneyland, except instead of fun, you're holding on for dear life.

But here's the kicker: this isn't a bad thing. Two-sided trade = opportunity. It's a trader's playground, but only if you know how to play by the rules of volatility.

Why Volatility Is Your Best Friend

In a two-sided market, volatility is the name of the game. It tells you everything you need to know about risk, sentiment, and where the market might go next. But here's the part most traders miss: volatility isn't just something you look at—it's something you trade around.

Take this from someone who's been around the block: when volatility is high, all your fancy indicators like RSI, MACD, and Fibonacci become about as useful as a chocolate teapot.

Volatility doesn't care about your charts. It just cares about who's scared and who's not.

Here's what to do instead:

#1 Read the Expected Move

The expected move (calculated from options pricing) is your ultimate guide in volatile markets.

It tells you how much the market "thinks" a stock or index will move in a given time frame. For example, if the S&P 500 has an expected move of $30 for the day, you know the market is pricing in some serious action.

(Click here to get the Auto Expected Tool for FREE)

Pro Tip: If the market is already up $20 and the expected move is $30, you know you're playing with fire. That last $10 of upside could turn into a complete reversal faster than you can say "stop loss."

#2: Stop Chasing, Start Waiting

In a two-sided market, patience isn't just a virtue—it's a survival skill. If you're one of those traders who buys every green candle or shorts every red one, congratulations! You're the reason the pros make money.

Instead, wait for the market to come to you. Let the volatility play out. Watch how price reacts around key levels. And for the love of all things holy, don't get caught in the crossfire of every tick.

Here's how you do it:

Set Alerts, Not Trades: Don't just throw orders out there like darts at a board. Set alerts at key levels and only act when the market gives you a clear signal.
Trade Smaller: Volatility means big moves, so you don't need to go all-in to make a profit. A smaller position size keeps you in the game longer.

#3: Know When to Take Profits

This is a big one. In volatile markets, greed is your enemy. If you've got a position that's up 30% in three days, don't sit there waiting for 50%—take the damn profit.

Let's say you're trading a spread on GLD (gold).

You planned to exit at a 55% profit, but volatility has already handed you 30% in a couple of days. Do you really think the market is going to keep giving you gifts? Take the profit, thank the market gods, and move on.

Remember, in volatile markets, it's better to take smaller wins consistently than to swing for the fences and strike out.

#4: Watch the Order Flow

Volatility creates opportunities, but you need to know where the big money is going.

That's where order flow comes in. Are traders buying calls or selling them? Are puts flying off the shelves? This tells you what's really happening under the surface.

Take Nvidia, for example. It's up on some big news, but the order flow shows something sneaky: more calls are being sold than bought, and more puts are being bought than sold. That's not bullish—it's a sign that the smart money is hedging or outright betting on downside.

Pro Tip: If the order flow doesn't match the price action, trust the flow. Price can lie in the short term, but the flow doesn't.

(NVDA options flow this afternoon)

#5: Embrace the Chaos

Here's the part no one likes to hear: you can't control the market.

You can't predict every move, and you sure as hell can't fight the volatility. What you can do is position yourself to take advantage of it.

Be Adaptable: If you're a bull, learn to trade bearish setups. If you're a bear, learn to play the bounces. The market doesn't care about your bias, and neither should you.
Focus on Risk, Not Reward: In a two-sided market, the goal isn't to hit a home run—it's to stay in the game. Use tight stops, trade smaller, and always know your risk before you place a trade.

Final Thoughts

This is your moment.

A two-sided market with high volatility is where traders are made (or broken). The key is to stop thinking like a gambler and start thinking like a strategist. Use volatility to your advantage. Respect it, trade around it, and never let it catch you off guard.

Remember: the pros know how to adapt, and so should you. Be patient, be cautious, and above all, be ready for anything.

And if you're still sitting there wondering what to do, here's one last piece of advice: shift gears now—or you're already toast.

If you'd like to learn how I trade in these market conditions and are not already a member of the TheoTrade Live Chatroom, click here to take advantage of this special offer.

Not only will you learn a lot, but I'll share with you my three highest conviction trade ideas each week, click here to get started.

To your success,

Don Kaufman

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