Spot Trading in High Volatility

When implied volatility is relatively high, it’s typically a great time to trade spot. Especially on bart-like moves. 

 

For example, a common trade that I like to take is to sell my BTC spot holdings while consolidation occurs after a bart move upward. I do this because of the very high probability that BTC will decline in price after a wild bullish move. 

 

The reason that it can be disadvantageous to trade futures after a wild market move is that the probability of being liquidated is elevated whereas that is obviously not a possibility when purely trading spot. 

 

Take a look at the dual chart below, specifically at the highlighted section where DVOL was around 156%. The market turned out to be so volatile that the consolidation range measured from low to high was almost 30%. This was a golden time to trade spot. 

 

With the amount of volatility/fluctuation during this period, many mistakes go unpunished. Even if you had done something such as selling at 33000 and then placed buy orders just below 30000 and then price rocketed to 40000, you still would have been fine (period of June 8 to June 15 in 2021) as your orders would have been filled on June 22nd when price had wicked to a low of 28800. 

Even if you had bought the local market top on May 26th of 2021of 40000 in order to sell just above 41000, you would have had your order filled a few weeks later on June 15th. 

 

Proper analysis and good trade selection is incredibly important, however know that when volatility is very high that sitting on your hands and not doing anything is one of the best things you can do even if a trade turns into a runaway. 

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