Strategy and Execution in a Shifting Market Environment
Friday, April 4th, and today, Monday, April 7th, 2025, brought a significant surge in volatility across the futures markets. Whether it was equity indices, crude oil, gold, treasuries or crypto, the tempo picked up, and the screens lit up with aggressive flows, wider spreads, and erratic price action.
These kinds of sessions expose the unprepared. But for the futures trader who knows how to read market context and adjust accordingly, they offer some of the best opportunities all year.
Volatility is not something to fear. It's something to manage, adapt to, and use as a lens for how you size, structure, and time your trades. In this piece, we’ll break down:
• What happens to spreads and depth when volatility increases
• How to recognize when volatility is dampening
• Why ATR is a key filter for adapting to market conditions
• How traders adjust risk management and execution in volatile environments
Volatility & Spreads: What Really Happens
When market wide volatility spikes, spreads widen across nearly every liquid futures contract. This is a direct function of risk and uncertainty, given liquidity providers don’t want to get run over.
Three key things happen:
Liquidity providers pull back
As the speed of price movement increases, market makers and passive players reduce their size or temporarily pull orders, causing the spread to widen.The DOM becomes thinner
Fewer resting orders sit at each level. What was once a deep, stable ladder becomes fragile and reactive. The best bid and offer flip rapidly, and chasing price becomes expensive.Aggressive orders dominate
Market participants switch from passive to aggressive behavior. Buy and sell market orders sweep through multiple levels, increasing slippage and creating brief dislocations.
Even instruments that typically hold a one-tick spread can start fluctuating between two, three, or more ticks, depending on the depth and participation.
When Volatility Dampens
The flip side of a high-volatility environment is the calm that often follows.
Dampened volatility shows up as:
• Tighter spreads
• Thicker order books on the DOM
• More range-bound or mean-reverting behavior
• A noticeable drop in tempo
This often happens post-news, mid-session. Recognizing when volatility is dampening is just as important as knowing when it’s heating up. Elite traders shift execution style in sync with this transition, moving from breakout or trend setups to fade-style trades or reducing participation altogether.
Using ATR as a Volatility Filter
ATR, or Average True Range, gives you a data-backed snapshot of how much the market is moving on average. It’s not just a number but also it’s a volatility filter.
Why use ATR?
• It helps you understand the current environment
• It allows for smarter stop and target placement
• It gives you a way to dynamically adjust position sizing
Example:
If NQ has a 3-day ATR of 220 points and you’re placing a 15-point stop, you might be underestimating the volatility risk. On the flip side, if ATR drops to 100 points and you’re still using a 25-point stop, you're leaving edge on the table.
ATR should frame your expectations and act as a tool to determine if the market is offering enough movement to justify your trades.
How Futures Traders Might Adjust for Volatility
The best traders do not use static rules. They adjust based on market conditions, particularly around volatility.
Here are some examples of how they may do it:
Risk Per Trade Is Volatility-Aware
Risk isn’t a fixed dollar or tick value. It’s dynamic. Elite traders may size down when volatility spikes because stop distances need to widen to reflect the current environment. The opposite applies when volatility compresses. The exception to this rule is that others may wish to size up if they believe they excel in these conditions. I know I do as these are my favourite trading environments.Position Sizing Scales With ATR
Larger ATRs mean you take smaller sized positions and wider stops. Lower ATRs can support slightly larger size and tighter stops, provided liquidity and trade quality are there.No One-Size-Fits-All Stops
Stops should be based on structure and volatility, not habit. A 12-tick stop in crude oil might make sense on one day but be totally out of touch on another. Use volatility and context to fine-tune each trade.ATR as a Daily Trade Filter
Some traders use a minimum ATR threshold to decide if they’ll trade at all. For example:
"If crude’s ATR is under 50 ticks, I cut size or skip the session."
"If NQ is above 200 ATR, I’ll reduce position size with a wider stop and be selective."Execution Style Adapts With Tempo
Execution adapts to tempo. In high volatility the tape moves fast and you need to react with conviction and no hesitation. It demands decisiveness, comfort with wider stops, and tolerance for slippage. Precision gives way to instinct. In low volatility execution becomes more surgical with quick entries and exits. Tighter targets and tighter risk. You have to be calm, balanced, and clinical, matching the market’s rhythm without forcing it.
Final Thoughts
Volatility isn't random chaos. It's information. It tells you how aggressive or cautious the market is, how thick or thin the order flow is, and what kind of risk-to-reward the market is offering.
Friday and Monday reminded us of that. Whether you’re trading ES, NQ, CL, GC, ZN, or in my case BTC, the message is the same in that those who observe volatility and adjust accordingly are the ones who endure and thrive.
Track your ATR. Pay attention to spreads. Use the DOM / Tape to ‘feel’ shifts in behavior. Most importantly, let volatility set the tone for how you manage risk and size.
Hey XO, hope you're doing well.
I've been following your work for a while now — both on YouTube and X — and I want to thank you for everything you share. You've helped me shift from randomness to structure in my trading. I’ve spent time studying your content and finally developed a complete strategy that aligns with what you teach, especially around supply/demand and HTF context.
Would really appreciate it if you could take a moment to check this breakdown. I’m trying to get better every week and refine my system — let me know if I'm heading in the right direction or if you'd do anything differently.
🔑 My Strategy – Inspired & Structured Around Your Teachings:
1. Market Context (HTF Bias First)
I always start with EMA 12/25 on the Daily and Weekly.
If the market is in a downtrend, I don’t counter-trade — I only look for short setups.
If it’s range-bound, I define range highs/lows and trade from key edges only.
This filters out random setups and aligns me with the bigger picture.
2. Supply & Demand Zones (My Core Focus)
I identify the origin of a pump (demand) or a drop (supply).
I only take trades from fresh, untested zones — ideally with a sharp move away (indicating unfilled orders).
I look for imbalance/FVG inside these zones — if present, I treat the zone as high probability and expect it to hold stronger.
3. Confirmation Process
Before I enter a position:
I wait for a 4H candle close inside or on the edge of my zone.
I check for:
RSI divergence to signal possible reversal/momentum shift.
Daily stochastic to avoid longs when overbought and shorts when oversold.
If these align at my zone, I prepare for execution.
4. Breakouts & Consolidation Logic
If there’s consolidation inside a demand zone, followed by a breakout above prior resistance, I mark that zone as powerful.
Same with supply — if it breaks prior support, that supply is validated.
On revisit, I look to enter again with confirmation.
5. 3-Shots Entry System
I’ve built a rule to avoid emotional re-entries and handle fakeouts:
If I get stopped on my first entry at a zone (liquidity sweep), I don’t chase.
I wait for price to return to the zone again.
Then I re-enter with a stop above the new invalidation (after the sweep).
I allow 3 total attempts, using smaller size after first stop.
6. Execution Rules
No front-running. I wait for price to come to me.
No mid-range trades.
No forced setups. If zone isn’t clean + confluence isn’t there, I pass.
I stick to my HTF plan — I don’t care about 1-minute volatility or noise.
📈 My Goal
I’m building consistency now through this rule-based, zone-first strategy. I’ve got a full flowchart of this process and journaling everything around it. Just wanted to ask you:
Does this structure look good to you? Would you add or refine anything?
Thanks again for the knowledge and realness you bring to the space, means a lot 🙏
— Osama
In the two weeks under your mentorship, I managed to complete only four trades, all of which were meticulously planned and executed successfully. Consequently, I have earned at least one R. I am delighted to share the process I developed with you in another comment. If you could kindly provide feedback on how to enhance it, I would be immensely grateful.