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How volatility should change your strategy: Trader

Market volatility has surged of late, and that means anyone trying to make money off stocks has to change their strategy, according to chart-focused trader Todd Gordon.

As of Wednesday's close, historical volatility in the S&P 500 is at the highest level since the end of 2011. Meanwhile, the Nasdaq composite has seen a 2 percent move in seven of its last 10 sessions.

With markets moving this forcefully to the upside and downside, with a decided emphasis on the latter, techniques that worked while stocks crept mildly higher could now get traders in trouble.


"You're going to see three or four times a travel range in one trading day as you normally would," Gordon said Wednesday on CNBC's "Power Lunch." "A volatile market takes more action."

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Gordon recommends that traders reduce their targeted holding periods. For instance, while he tends to hold onto positions for a week or longer, in markets like these he sticks with trades for three sessions or less.

He also recommends that technically minded traders utilize shorter-term charts showing intraday movements, rather than daily or weekly charts.

Finally, Gordon says it's critical to closely examine the size of one's trades. A smaller trade could now have the same risk/reward profile of a larger trade put on in less volatile times.

Still, on the whole, volatile markets are great for those who can make skilled moves quickly.

"Generally they say you make 70 percent of your money 30 percent of the time," Gordon said. "We love the volatility."

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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