How to Trade DailyFX+ Currency Trading Signals in Week Ahead

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Relatively stable volatility levels make Trend-based currency trading strategies attractive through the near term, as nearly 60 percent of our currency pairs are in low-volatility trends. Such conditions are ideal for using Speculative Sentiment Index trading signals, as they tend to outperform during general trending environments. Relatively depressed volatility levels also make Range Trades viable, but traders should avoid range trading pairs in strong trends.







Preferred Strategies
Given a clear Trend and Range Trade bias across our major traded currencies, we prefer to trade off of SSI Trading Signals and, to a somewhat lesser extent, the Pairs to Range Trade and Hedging Reports. On the other end of the spectrum, it seems as though Breakout trades may have a difficult time gaining traction in the absence of more elevated volatility levels. Keep risk tight or use smaller position sizes on trades that require significant price breaks in the week ahead.
Discretionary Strategy Outlook
Hedging Radar – A significant pullback in volatility makes Hedging Radar trades especially attractive through short-term trading. As always with Hedging Strategies, however, currency pairs in prolonged trends should be avoided in strong trending markets.
Pairs to Range Trade – The drop in volatility makes the Pairs to Range Trade report likewise attractive in the week ahead, with 1/3 of our major currency pairs in Rangebound conditions. As with the Hedging Radar, however, pairs in strong trends should be avoided.
Speculative Sentiment Index Trading Signals – Given strongly directional forex markets, our SSI signals look especially attractive in the weeks ahead. A trader may use SSI bullish or bearish biases alongside his or her own trading techniques to trade in the direction of these strong trends.
Tops and Bottoms – It is always difficult to create a general bias for the Top/Bottom report, as it is not immediately clear when we may expect strong reversals in price among major currency pairs. That said, current conditions favor comparatively small price movements. We would argue that a trader may choose to underweight these specific trades through the near term.

Systems Outlook
Dynamic Carry Trade Basket – Please see our weekly report on Carry Trades for a better idea on what to expect through short-term trading. (Rebound in Carry Trades Hits Resistance as Risk Appetite Falters.)

Technical Analyzer and Signals from Thomson IFR – Pay special attention to trade ideas with trend or range strategies in mind, while keeping size small or staying out of Breakout trades.





Chart Definitions

Volatility Percentile – The higher the number, the more likely we are to see strong movements in price. This number tells us where current implied volatility levels stand in relation to the past calendar year of trading. We have found that implied volatilities tend to remain very high or very low for extended periods of time. As such, it is helpful to know where the current implied volatility level stands in relation to its calendar-year range.
Trend – This indicator measures trend intensity by telling us where price stands in relation to its 52-week range. A very low number tells us that price is currently at or near yearly lows, while a higher number tells us that we are near the highs. A value at or near 50 percent tells us that we are at the middle of the currency pair’s annual range.


Written by David Rodríguez, Currency Analyst for DailyFX.com. To contact the author of this article, please e-mail drodriguez@dailyfx.com.