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On Tuesday I talked about how you can improve virtually any system by filtering on ATR basis.
This is so obvious in retrospect, I can’t believe I didn’t notice this earlier in my trading career. High volatility and low volatility periods have completely different psychology, the same way trending and rangebound markets are driven by opposite psychology.
Basically, during decreasing volatility trending moves, counter trend setups are a negative edge.
But counter trend setups become viable again once ATR (as a proxy for volatility) reaches a historic low and then rises.
This is because volatility, once it starts falling, has a statistical tendency to continue falling until it reaches an extreme.
Note from Tim: I was absolutely thrilled to get word from Scott a few days ago that he was returning to Slope! He has generously proposed contributing articles, which is terrific. During a rare international trip last August, Scott and I made arrangements to meet one another, but unfortunately we never connected. In any case, welcome back to the baddest bad-ass out there!
For those of you too young to remember me, allow me to re-introduce myself.