Volatility itself could kill the marketsThe VIX is called the 'Fear Index'. That's for a good reason. In times of high volatility what do you do? People in general stay out i.e. they sell off and keep their powder dry, or look for safe havens. They fear for their money, even if they don't admit it.
As a trader you're told 'volatility is good for traders'. But really - is it? It depends on how extreme the volatility is. How many of you have stayed out of the markets simply because you cannot withstand the volatility and risk? I think there are many who do so - and they are right. No point jumping in and getting fried if you cannot take the loss (in your stop losses). The average true range on many charts are pretty high in recent times. And if your stop loss is sensibly going to two times average true range (at least), many will know that they cannot take the loss.
It's this simple, do you throw your money into a volatile market, like stocks at this time - and have any degree of confidence that tomorrow morning or two months later, your assets are gonna be worth more? I think not. So logically most people will not venture much into stocks at this time.
Forex markets too are becoming more volatile in the last 2 months and more so in the last week. Can you jump in and with what level of stop-losses? Most people are gonna stay away. This is about mathematics. Most people have smaller accounts and cannot withstand the volatility, so would sensibly stay out.
The whole thing is connected up. The Yen and USD to Wall Street (the US30); the EURUSD to Ger30. They've got you cornered! :))
If a majority - even 51% of people - stay out, it means they've gotta liquidate, which means selling off. If this idea is right then it means there is more downside to lots of indices and possibly increased volatility on forex markets.
