It seems that it was not that long ago the the forex market was characterized by higher volatility, with average daily ranges exceeding 1% of the spot price.
If you are currently trading the forex market, it is hard to not recognize the lower volatility and choppy trading that have frustrated not only trend traders but day traders as well. I look at volatility as a market characterized by tight daily ranges and limited follow through with choppy trading, limited trends and often false starts in both directions. It is a matter of adapting in this environment to take advantage of opportunities to trade. .
So, the question is, how do you trade a lower volatility market and not only survive but thrive when daily ranges are relatively narrow? Without getting into a long discussion, here are 8 tips for trading in this type of market.
1. Be realistic: Identify the type of market you are in and take what the market will GIVE to you, not what you HOPE it will give to you.
2. In lower volatility markets it is hard to make losses back so be selective and look to trade the strong side of the market, which I define as the side where there is less chance of getting caught in a run through stops. Look for a strategy to trade where you can identify a stop that gives you staying power
3. The forex market has an insatiable quest to run stops. There is a way to identify where stops are resting (sign up for The Amazing Trader). Currencies will settle into relatively tight ranges when there are no more stops to run for the day.
4. Stay alert! Treat the average day as a range market (with a bias if there is a broader trend) but beware of those days where there is news that can shake the market out of its slumber. Don’t trade as a range day when news and/or technicals suggest otherwise.
5. News matters! Look ahead to what news is coming out and the consensus forecast. It is often safer to trade in anticipation of how the market will position itself ahead of a news event rather than trying to trade on the actual outcome. A currency’s reaction to news will give you a clue as to iys underlying strength or weakness. Economic Data Calendar
6. Look to take profits sooner in a lower volatility market than when markets are trending.
7. Beware of tight ranges as small moves on a chart can exaggerate its look, influence your sentiment and lead to ll-advised trades based on emotion.
8. Try repeat trades. In other words, keep trading one side of the market until it stops working. It beats flip flopping. Contact ,me to ask about my “drill down” .approach to identify the side to trade.
Lower volatility markets can be frustrating and it easy to get chopped up in tight ranges if you bet on breakouts but the history of the forex market is that they do not last forever. However, while volatility stays low, adjust your trading strategies so you can build a cache of profits so you can take some risk when market volatility picks up.
Feel free to contact me with any questions or comments.
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