special reports

Currency Trading Signals Remain Profitable on US Dollar Breakdown

Monday, 15 December 2008 14:35:24 GMT  |  David Rodriguez, Quantitative Analyst

Currency trading market conditions remain extremely difficult to time, and unexpected breakouts in the Euro and US Dollar have made several of our Momentum and Breakout-based trading strategies profitable through the past several days of trading. Currency speculators seemingly lost their patience with the US Dollar, as wave after wave of disappointing fundamental data finally sent the Greenback considerably lower against most forex counterparts. Continued US Dollar volatility would make our Momentum and Breakout-based strategies attractive through near-term trade, but market conditions remain extremely difficult to time. We will stubbornly maintain our primary bias towards Range trading-based signals, as market volatility will likely slow down heading into the end of December.

Forex Trading Automated Systems Outlook

DailyFX+ System Trading Signals – Our trading systems have generally fared well in the past seven days of trading. Breakouts and turns in trend in the US Dollar favored our Momentum2, Momentum1, and Breakout2 systems, while our Range1 trades have held up surprisingly well despite the jump in volatility. The Range2 trading system has been especially quiet as of late, as this system does not place trades when sentiment reaches extremes—much like we saw in the past week of trading.

We maintain that major currency pairs will remain within their wide trading ranges through upcoming price action, and we will continue to favor longer-term Range1 trades and shorter-term Range2 signals. Yet recent price action has emphasized that volatility can return at any moment, and diversification across different trading systems may prove beneficial. We will update our stance on market conditions as price action dictates.

DailyFX+ Forex Market Conditions Outlook

NOTE: Methodology has been changed. Percentiles are now measured on a 30-day basis, down from 90 days previously.

Definitions

Volatility Percentile – 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. 

Trend – 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.

Range High –  30-day closing high.

Range Low  –  30-day closing low.

Last – Current market price.

Strategy – 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.

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.

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