How to Trade DailyFX+ Currency Trading Signals in the Week Ahead

A more sustained gain in market volatility confirms that we may be entering a period with larger currency price movements, forcing us to make fairly substantial shifts in our outlook for our currency trading strategies. Last week we claimed that Range Trades may outperform breakout strategies through the foreseeable future, but the turn in market volatility suggests that Breakout and Trend-based strategies are best option in the near term.


Preferred Strategies
Given a higher-volatility bias and strong currency trends, we will look closely to trading signals from our Speculative Sentiment Index report and our Top-Bottom report. SSI trading signals will tend to outperform during times of strong trending markets, but these currency signals may disappoint if markets enter choppy sideways trade. To that effect, current market unease increases the attractiveness of our Top-Bottom report, as these are typically the moments at which we will see strong reversals in price. In sum, a combination of the SSI and Top-Bottom may prove the best strategy through the near term.
Discretionary Strategy Outlook
[B]Hedging Radar[/B] – Strong trends across key currency pairs may make for somewhat difficult Hedge Trading conditions in the majors, but some crosses may offer comparatively attractive setups in the week ahead.
[B]Pairs to Range Trade – [/B]Elevated volatility makes picking suitable range trades a tricky proposition. Given that range-based strategies typically employ mediocre risk/reward ratios, it may be best to trade such strategies with smaller size or not at all until further notice.
[B]Speculative Sentiment Index Trading Signals – [/B]Our Speculative Sentiment Index signals have given us relatively little directional bias through recent trading, but we nonetheless feel that conditions remain ripe for SSI-based trades. Using the SSI as a complement to your own trading techniques remains an attractive option through the near term.
[B]Tops and Bottoms[/B] – 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. A relative unease across key currencies could potentially make for noteworthy reversals, but it is always difficult to predict a turn in the tide. We like general prospects for Top/Bottom trades, but traders may look to offset exposure with Speculative Sentiment Index trading signals.

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 Unwinding Follows a Market-Wide Selling of Risk)
[B]Technical Analyzer and Signals from Thomson IFR[/B] – Pay special attention to trend/breakout strategies in the week ahead, while underweighting or casting aside range trade strategies.


Chart Definitions

[B]Volatility Percentile[/B] – 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.
[B]Trend[/B] – 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.