First of all, let me start by saying I am a complete novice when it comes to Forex Trading so my question may seem very stupid to people more experienced and knowledgeable.
I am currently using a demo account (which is offered by IG and I am using their online platform) to test various strategies and to put into practice everything I am currently learning about Forex Trading.
After looking at the charts and using other forms of analysis, it seems to me that the most popular currency pairs arenât showing any strong trends and are very volatile because of these strange times. Is that the case or am I simply misinterpreting what I am seeing?
Do fellow forum members think it is wise to wait until market conditions improve so I can learn in a better environment? At the moment it seems like I am not going to learn anything of value because of what I perceive as being such strange market conditions - which I assume is being caused by the global pandemic we are facing that is making the future so uncertain for many countries.
I believe youâre right, which notionally makes sense - how the heck can the world be going through a major business lockdown and an economic crisis with no impact on ânormalâ forex price behaviour?
But how to quantify this is tricky. Apart from anything else, thereâs not universal agreement on what is a trend. Or how to gauge and measure ânormalâ market conditions.
To get some handle on this I have looked at the last 13 weeksâ bars in comparison with the 50EMA and the 200EMA. Ordinarily, it might be expected that most weekly bars opening above the EMA would rise, and most weekly bars opening below the EMA would fall. At worst the ratio should be 50:50, if price behaviour were fully random.
In fact, across the 28 important pairs over the last 13 weeks, only 45% of weekly bars followed this guideline in comparison with the 50EMA, and only 44% relating to the 200EMA. So it follows that the majority of pairs are moving counter to what TA would tell us in this context. Not a great time to be trying to develop forex trading skills.
Thanks for the prompt and detailed reply. You have confirmed what I was already thinkingâŚ
Coincidentally, it was actually the price action in relation to the 200 EMA that made me think this wasnât a good time to try and develop my trading skills. I was testing a scalping strategy and one of the ârulesâ stated that if the price was above EMA, I should only go long and if the price was below the EMA, I should only go short. I opened the charts of the most important pairs and in almost every case the price was bouncing around all over the place and regularly crossing the 200 EMA line.
Because of the current market conditions, would you suggest I focus on backtesting instead of trading the present market?
I am only trading on a demo account as I stated previously, but I am trying to make the experience as real as possible and psychologically I am treating the demo account as if it is a real live account.
Thanks again for your advice, it is much appreciated!
Right now Iâm still trading but only one specialised trade on GBP/USD and my positions are half the size they would normally be. My rule currently is to use tactics to preserve capital while keeping in touch with the market in case it quickly resumes its normal behaviour: there wonât be an announcement.
If you are looking at scalping with moving averages maybe you could consider this. Setup 100 and 200 SMA on hourly chart. As price approaches one of the SMAâs it will act as support or resistance. Let the price get within 1 pip and use a 10-15 pip stop to try and gain 10-15 pips. If price goes to the middle of the two, try scalping from one MA to the midpoint. Always scalp away from your support with stop on other side.
Know your audience. Everyone here, is here to learn from one another. You do not need to a) preface your posts with this b) INTRODUCE NEGATIVE MIND-SPEAK and classify yourself as a complete novice asking a very stupid question. This accomplishes nothing. Come from a place of positivity that you are learning. Period.
To your larger question: This is exactly why I advocate keeping a variety of tools in the tool shed. Being able to trade in any market environment and not over-trade because youâre simply bored and forcing yourself to see something on a chart that is simply not there.
THIS IS A CRITICAL TOPIC and you are on the RIGHT track!!! Excellent line of thinking and excellent question. I can tell you from experience you are already way ahead of most people and thinking about things in the right way!!!
There are many answers to this question- too many to type.
You can jump markets (e.g. stop forex go to futures, equities, options, etc).
You can try and develop new skills.
You can do nothing and just protect the profits you made.
Donât force yourself to see something that isnât there.
Keep up the great thinking and you will do fine- trust me.
Thanks for the suggestion. I will try this and see how I get onâŚ
I donât plan on scalping much in the future as one of the things I have learned which has stuck in my mind is how over trading is one of the biggest account killers. I can see how scalping a lot can very easily lead to over trading. Ultimately, I am trying out a broad range of trading styles and strategies so it helps me better understand the fundamentals of trading and how the markets work.
I am actually very happy with how my âtrading educationâ is currently going. One of the reasons I feel the need to state that I am a complete novice is so that people can speak to me as plainly and simply as possible in order for me to better understand. It is often the case that people have the best intentions and are trying to help but they explain things with the assumption that you already know certain jargon or techniques relating to said subject.
Thank you for the confidence boost and words of wisdom! It is greatly appreciated!
I think the way forward for me at this point is to continue developing my knowledge and skills which I hope will enable me to successfully trade in such strange market conditions.
Hi and welcome,
An excellent reply by FOREXunlimited, which is spot on, but your honesty is appreciated. I am not experienced either, but I have spent the last few months relearning what I knew some years ago. Your question is very relevant for me at this particular moment because it is one of a few tens of questions I have to answer for myself in developing my detailed trade plan as I re-engage Forex after a multi-year gap.
The link below may give you the right level of âmetadataâ you may be looking for. A comparison of the Average True Range of currency pairs from 2014 to 2020, which shows a definite reducing trend.
It was a random Google search, third time lucky since I found exactly what I wanted to find. I am nearing the end of a 100 hour free course of videos and blogs that will shape my imminent revised trading plan for Forex, and so you have helped me find what I was looking for. The course talks about three market conditions - consolidation, compression and expansion, and the objective is to not get caught in trading (and making losses) in consolidation and compression - and only to trade during expansion or where there is volume (implying volatility). I follow the teacherâs advice that the most important indicator by a mile is the ATR. So please spend some time on Baby Pips reviewing again the ATR, and please let me know if the link has provided some historical metadata of use in your planning during âreduced volatilityâ conditions. Importantly, I believe the lesson I took away here is that we are looking to identify expansion, and to trade with the trend. Hard to tell without expanding the graph, but it looks to me that PIP movement in 2015 and 2016 was almost twice the volatility of 2019. Itâs a noticeable reduction in activity, but not one that should prevent us from trading. BTW, the average daily range is also the average true range ONLY on the daily (D) chart. Default setting for ATR is 14 - as in ATR(14), but that variable can be set to suit the traderâs individual preference that contributes to his trading plan. I hope this makes sense. If you need clarification please ask.
Hi again,
I have just spent 5 minutes reviewing the table provided in the link, and sorted in 2020 by most to least volatile. The data does not support your anecdotal evidence. I know from the current work I am doing that the GBP/NZD is recently volatile, and this table bears that out. The first few most volatile are at their most volatile since 2014/15 which is in conflict with your evidence. Hope this is of some use. I will play with the report some more.
Every market condition teaches us something. Therefore one must always be learning, no matter what the market condition. You donât necessarily have to trade the market unless youâre comfortable doing so but you must not abandon opportunities to learn and gain experience even in anamolous conditions. The more experience you have in varied market conditions, the better you will be able to trade in the future.
How would you know that market conditions are strange? As a new trader you have no idea what the market should look like. I donât see much difference in the way the market moves. It is true that volatility has dropped over the past few years but other than that, price action remains as it used to be. Still works.
Youâre prerogative, but, Iâd avoid it. As minuscule as it may seem, it is a subconscious constraint your placing on yourself. If someone canât communicate to you in a manner that is effective, thatâs on them- not you. And, you should probably avoid their advice anywayâ makes sense if you think about it, right?
Youâre welcome! To be frank, when I see a post like this (context, depth, logical thinking, no punctuation errors, well thought out) I will ALWAYS take the time to meet that level of effort with a more thoughtful response.
There is nothing wrong with continuing to educate yourself. Iâd even recommend taking a look at the equity derivatives market (aka options). There are countless strategies for literally every type of market environment- and, when you learn about selling premium and the statistics behind probability of profit when writing calls/put- light bulbs will go off all around you.
Well, I believe youâre right, as with the entire world hit by this pandemic, this situation is bound to exist and hence you can see a change in trends in your demo account as well.
Market conditions are a little tricky to identify and gauge. Its very obvious that market conditions have changed when we all see reliable strategies stop working. But thatâs a lagging indicator and its also binary - the strategy either works or it doesnât.
So how can you tell if market conditions are in the process of changing and how can you tell how far negative they are? You can use chart meta-data, in which the aggregated set-ups of multiple charts are more informative than the features on each individual chart. For example, I use the 28 significant pairs charts for some weekly summaries -
long-term ATR - To some extent all strategies rely on price volatility: if this is zero there is no price movement and no opportunity to make a profit. But some strategies need high volatility. Check ATR across multiple charts and log how many are high/low, rising/falling, at year-to-date highs/lows, etc. Express this as a percentage score on a weekly basis.
weekly bar overlaps - Check backwards how many of the last 13 weekly bars make recent consecutive overlaps with the most recent bar. The current average is 6.7.
weekly price direction normality - Assume that if weekly closes are above a long-term MA, most subsequent weeks should show bullish price action: assume the reverse for weekly closes below a long-term MA. Last week, the percentage of weekly bars in the prior 3 months which complied with this hypothesis of normality was only 46%: this was only a little better than the previous week which was 45%.
When we see these numbers change, we will get some indication of market conditions emerging from the current crisis and strategies will be getting back into their normal environments.
Hello, I think in this market condition your risk management game needs to be on point, for all trades regarding that if youâre at a consistent 2:1 profit loss ratio, you donât even need a 50% or higher success rate to be profitable⌠but that being said Iâm only trying to focus on 2 pairs atm
Know your audience. Everyone here, is here to learn from one another. You do not need to a) preface your posts with this b) INTRODUCE NEGATIVE MIND-SPEAK and classify yourself as a complete novice asking a very stupid question. This accomplishes nothing. Come from a place of positivity that you are learning. Period.
