Forex Strategy Outlook: Momentum Trading Systems Attractive on US Dollar Trend

An early-week turnaround in the US Dollar has led our trend-based trading signals , and a continuation in US Dollar strength could set up ideal conditions for outperformance in key strategies. Extremely choppy market price action has made it difficult for longer-term trend traders to catch worthwhile currency moves, and our Momentum systems are no exception. Yet markets have been a bit too volatile for our Range strategies to do well, and unclear market outlook leaves us in a difficult position. When in doubt, we typically revert back to our high-risk/high-reward Momentum and Breakout systems.

Given our bias, we leave ourselves at clear risk of being shaken out on continued market choppiness. Yet the rewards on a sustained US Dollar breakout could offset the low-probability nature of Momentum and Breakout trades.

[B]Forex Trading Automated Systems Outlook[/B]

Momentum2 and Momentum1 have put up lackluster numbers as of late, with directionless and volatile price action shaking out the trend-following trading signals. Momentum2 has been marginally more successful because it typically switches direction much more quickly, and it has accordingly been the first to latch on nascent trends. We like its prospects and will accordingly favor said trades through the near-term.

[B]DailyFX+ Forex Market Conditions Outlook[/B]

[B]NOTE: Data has once again been changed. Due to the ineffectiveness of the 30-day horizon, we are returning to the original 90-day time horizon.[/B]


[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 30 days 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 medium-term range.

[B]Trend[/B] – This indicator measures trend intensity by telling us where price stands in relation to its 30 trading-day range. A very low number tells us that price is currently at or near monthly 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 monthly range.

[B]Range High[/B] – 90-day closing high.

[B]Range Low[/B] – 90-day closing low.

[B]Last[/B] – Current market price.

[B]Strategy[/B] – Based on the above criteria, we assign the more likely profitable strategy for any given currency pair. A highly volatile currency pair (Volatility Percentile very high) suggests that we should look to use Breakout strategies. More moderate volatility levels and strong Trend values make Momentum trades more attractive, while the lowest Vol Percentile and Trend indicator figures make Range Trading the more attractive strategy.

[I]The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. FOREX CAPITAL MARKETS, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. FOREX CAPITAL MARKETS, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FOREX CAPITAL MARKETS, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.[/I]