How To Know How Far A Market Will Move

To better understand Expected Movement and Deviation Levels, suppose for a moment that you are an Auto Insurer. You have a 40-year-old woman with no accidents and a 16-year-old boy who has already totalled his first car and wants to insure his next car. Who is going to pay the most in premium? How much risk is involved in insuring each of these people? These things are taken into consideration when the price of the premium of the insurance is determined. Likewise, the amount of risk and the expected movement is built into the price of an option.

The big fancy term in the trading world that is usually used for expected movement is implied volatility. There are many cool tools on the internet that help you with your analysis of each market and figuring out the expected movement or implied volatility. You can go to different websites and experiment with analyzers that will help you back test to see how much the market would need to move in order to be breakeven on the trade. It doesn’t matter what you are trading. These tools will work with just about anything you trade. You want to find out what the expected move is if the market is to go up or down to be breakeven on that trade. Did it hit that expected move? It is important to have realistic expectations for how long it will take for a market to move a certain distance. This becomes even more important if you trade options.

Options are the poll of all the traders. This is where they are putting their money where their mouths are, so to speak. This is how they “vote” on how far they expect the market is going to move. It doesn’t matter if you trade stocks, futures, Forex, CFD’s, Nadex spreads or binaries. Whatever it is you are trading, you need proper expectations of how long it is going to take for a market to move a certain distance. Options help you do this. Trading is about probabilities. You want to see if there is enough room in the expected movement that you can make a nice profit.

This information is usually correct around 70 percent of the time. Five percent of the time it is under the expected movement; 25 percent of the time, it is over. The closer it is to expiration time, the easier it is to predict.

As was mentioned before, these cool tools, that can be found on different websites, are used on a variety of different trading instruments. They are primarily used by traders for longer time periods than one day. But what if you want to be able to analyze and know how far the market is going to go in one day? It’s possible.

On the Diagnostic Trading Hour on TFNN, Darrell Martin told listeners that he has taken the same formula and merely turned it inside out. He has taken the Implied Volatility and the Deviation moves out and turned it into a one day move that gives you daily deviation levels. You now have the expected move built into the price of the options. The expected move of the day, for example, could be $18, meaning it could go down $9 and then back up $9, but that is $18 for the day. He has all deviation levels listed at Apexinvesting.com. where you can know what the proper expectation levels are for each day. To view an example of a day’s deviation level chart, click HERE.

Day after day, for the majority of the time, these levels hit their expected move. You can look at all markets and see how they go one deviation move.

Martin has a unique formula he uses to figure these expected movements. It’s not just some randomly chosen number. It’s not a pivot point, a fib level nor is it based on any past market price action. It’s not historically based, either. It is based on live volatility.

Having expected movements lets you know not to add into positions when you are getting into one deviation levels. It also helps you know to tighten your stops or look for a reversal trade.

If you would like to see other ways that expected movement can help you in your trading, go to www.apexinvesting.com, a service provided by Darrell Martin. Apex Investing Institute offers free education, and free access to the Nadex Binary and Spread Scanner Analyzers. Member traders are invited to trade in the chat rooms, take advantage of trade signal services, have key indicators and access the Apex Forum. The forum content is updated daily and includes over 8000 members. In a supportive learning community of seasoned as well as up and coming traders, traders of all levels learn how to trade Nadex binaries and spreads in depth, as well as futures, forex, stock and options, and gain an edge for successful trading overall.