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Tips in Adjusting to the Forex Market when there is Low Volatility

The summer season is almost upon us, which means that you should be thinking about adjusting your trading strategy to adapt to a less volatile market environment.

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Tips in Adjusting to the Forex Market when there is Low Volatility

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  1. TIPS IN ADJUSTING TO THE FOREX MARKET WHEN THERE IS LOW VOLATILITY

  2. Index • Tips In Adjusting To The Forex Market When There Is Low Volatility • Range Trading • Trade Cross-rates • Manage Your Expectations • Summary

  3. Tips In Adjusting To The Forex Market When There Is Low Volatility • Over the past several sessions I have talked in the DAILY FX POSTS and on twitter about the fact we are heading into the summer doldrums of trading. • This means much, much lower volatility and thinner trading markets across the board.

  4. For the month of August, I may trade the odd trade but generally, I do not trade. • In fact, there will be no blogs and I cannot guarantee even a tweet.

  5. You basically have two options as I see it the height of the summer. 1. Sit tight…stop trading until the Autumn (fall). 2. Take the opportunity to practice a different set of trading skills. • For those of you that want to try some new trading ideas, here are a couple of ideas that you may want to consider.

  6. Range Trading • Over the past couple of weeks you would have noticed that our trading ranges have tightened and basically all the ranges have pretty much held. • There has been the odd breakout and breakdown but this is entirely due to thinner markets in my opinion.

  7. With RANGE TRADING, you have to trade on much lower time frames. • Use 1, 3, 5, 10, 15 and 30 minute charts to plot entries and exits. • Use trend lines to plot the ranges and enter as the pair hits the lower trend line long and short as the pair hits the upper trend line.

  8. Place you stops 1-30 pips either side beyond the trend lines, using your TRADING PLAN and RISK MANAGEMENT to plot the stop loss placements. • Obviously you take your profits just before the trend line limits are reached, before the pair reverses direction. • It is essentially the pullback strategy within a plotted trading range.

  9. Trade Cross-rates • Moving way from the USD major pairs towards the cross-rates can open up new opportunities. • In normal times these are less liquid and more volatile at news events.

  10. As you know as a FUNDAMENTAL TRADER first then technical, in particular I like the commodity crosses as these pairs are influenced more by fundamentals rather than the daily noise that you see in the USD majors. • The only issue to bear in mind is that the commodity crosses are affected by “Risk on / Risk off”.

  11. Commodity Crosses • EUR/AUD, EUR/NZD, EUR/CAD, EUR/NOK. GBP/AUD, GBP/NZD, GBP/CAD. Non-commodity Crosses: • EUR/GBP GBP/CHF

  12. Apart from the EUR/GBP, be careful with the rate spreads on the rest because if your range trading moves are say only a maximum of 25-35 pips, you may have a 5-8 pip rate spread on these pairs, maybe even higher when there is lower activity in the markets. • Position sizes will be very important.

  13. Manage Your Expectations • This is crucial. • There will be no 100-200 pip moves, at best you may see 25-35 pips. • This is “scalping” trading in the truest sense, based upon a pullback strategy within a clearly defined range.

  14. Whilst some traders would argue, in lower volatility markets you can trade bigger positions to keep your profitability levels up, I would say AT YOUR PERIL….you get a move away from your direction…watch your losses add up. • Lower liquidity environments induce spikes, false breakouts and false breakdowns.

  15. Summary • In my opinion, you have to still TRADE YOUR PLAN and PLAN YOUR TRADES. • At ALL TIMES you must TRADE YOUR TRADING PLAN and work within your RISK MANAGEMENT guidelines.

  16. Just because it’s quieter it does not mean less discipline, it means greater disciplines are required to cope with the potential boredom. • You must range trade with stops in place 100% of the time.

  17. Thank You

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