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Forex Strategy Video: Buying Dips on S&P 500 is Selling Volatility

By , Chief Currency Strategist
04 March 2014 20:57 GMT

Talking Points:

• 'Selling vol' is a strategy akin to buying dips, but the implications are shorter term

• On jumps in volatility (risk premium), short-term traders look to sell the 'fear' and buy risk assets

• This approach reflects a market that is interested in short-term moves rather than long-term investment

Market conditions change, and our strategy should reflect those changes. We have coded the DailyFX-Plus strategies for Breakout, Range and Momentum to adapt to these market shifts.

The S&P 500 has turned another correction on its head and charged to record highs. Yet, even bulls are dubious of the follow through this move for equities and sentiment can find. The expected time frame for investors placing new positions after such modest corrections with a close proximity to such parlous heights is dwindling. This sets the tone for current trading conditions dominated by short-term volatility events and their subsequent corrections. It also tells us the equilibrium for bullish appetite is waning. This is a key aspect for what we trade and how we trade it whether looking at equity indexes, yen crosses, the US dollar or any other 'risk sensitive' asset. We discuss this 'selling vol' approach the market is exploiting in today's Strategy Video.

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04 March 2014 20:57 GMT