Volatility says in a sense, that what moves up also moves down. Here’s how we define it technically as it applies to our real-time statistical analysis:

Definition of technical volatility

A resourceful trader knows his/her prey and can identify a stock’s natural volatility so that a natural wiggle doesn’t automatically hit a stop order (See AAPL’s Volume Weighted Volatility). Even better traders know the volatility of each strategy they employ in the market (Hint: The Odds Maker provides this in its daily summary of backtested results).

Did you know you have your own personal trading volatility?

Ask your inner trader: How many times would you make 11 trades in a day if your first 5 were losing trades?

Nothing says that the first few trades must be winners to have a winning strategy. However, being human, few of us are Zen masters with nerves of steel. Often we get tired or lose our desire to trade if the first several positions do not work. I know many traders who operate under a 3 strikes and your out rule in the market. Maybe the 3 needs to be adjusted according to the strategy determined by the backtested results a trader obtains rather than a baseball rule uniformly applied to every trading situation.

The market takes the money from traders who can’t stick to their rules – including weakly justified, non-evidence-based rules – and weeds them out. The 8th, 9th, and 10th trades might very well be the ones that would have not only put you over the top but would have made your day. But because you got frustrated you never saw those trades.

Fortunately good trading tools can act like the levees that hold back your tidal waves of emotion. Backtested strategies that tell you how many winning trades to expected out of every 10 trades, ratios of winning trades vs losing trades, and the option of automating those strategies rolling forward are the kind of discipline – reinforcing features you must demand from your tools.

That’s the ballgame.