A fairly sizeable drop in market volatility has made Range Trading and Trend Trading significantly more attractive in recent weeks, and our Range/Trend/Breakout Barometer now shows 50 percent of our traded currency pairs in Range conditions. This is a noteworthy drop from just recently, when the majority were flashing signals of potential Breakout.
Market Conditions Summary
A fairly sizeable drop in market volatility has made Range Trading and Trend Trading significantly more attractive in recent weeks, and our Range/Trend/Breakout Barometer now shows 50 percent of our traded currency pairs in Range conditions. This is a noteworthy drop from just recently, when the majority were flashing signals of potential Breakout.
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
[B]Hedging Radar[/B] – 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.
[B]Pairs to Range Trade – [/B]The drop in volatility makes the Pairs to Range Trade report likewise attractive in the week ahead, with nearly 40 percent of our major currency pairs in Rangebound conditions. As with the Hedging Radar, however, pairs in strong trends should be avoided.
[B]Speculative Sentiment Index Trading Signals – [/B]Given clearly directional forex markets, our SSI signals look especially attractive in the weeks ahead. Anecdotally, the signals have proven especially accurate as of late in the EURUSD and other majors in gauging likelihood of directional moves.
[B]Tops and Bottoms[/B] – It is difficult to create a general classification for all Tops and Bottoms trades, but they tend to perform best when we see major reversals across currency markets. Given relatively low volatility levels and strong trends, however, we are less likely to see any such reversals in the weeks ahead. As such, we would prefer to be underweight on the Top/Bottom strategies through the short term. Trade this report with smaller size until conditions become more favorable to strong reversals.
Systems Outlook
[B]Dynamic Carry Trade Basket[/B] – Please see our weekly report on Carry Trades for a better idea on what to expect through short-term trading. (Carry Trade Rebounds on Drop in Volatility)
[B]Technical Analyzer and Signals from Thomson IFR[/B] – Pay special attention to trade ideas with trend or range strategies in mind, while keeping size small or staying out of Breakout trades.