special reports

Forex Trading Signals Update: Momentum Strategies Outperform, But Range Maintains Upper Hand

Monday, 17 November 2008 13:34:02 GMT  |  David Rodriguez, Quantitative Analyst

Our Forex Trading Signals performed well as of late, catching major moves in the US dollar with impressive accuracy through recent trading. Market conditions have been incredibly difficult to forecast, however, as unpredictable explosions in market volatility have disrupted otherwise range-bound price action in major currency pairs. We remain convinced that major currencies such as the Euro/US Dollar will continue to consolidate within wide trading ranges through the near-term, but it likewise remains clear that intraday volatility may make it difficult to pursue range trading strategies. We will look for trading opportunities in longer-term trading ranges, but our intraday strategy shall be to look for solid breakout and momentum trades on shorter-time frames.

Forex Trading Automated Strategies Outlook

DailyFX+ Forex Trading Strategies - Our Momentum trading signals have once again been the strongest performers through the past week of trade—defying our own predictions that Range1 and Range2 strategies would outperform through wide trading ranges. Forecasting trading conditions has been tricky, but we remain fairly convinced that major currencies will remain in longer-term ranges as they consolidate previously explosive movements. This means that we may look for good opportunities in longer-term Range1 trading signals, while the Range2 strategy could likewise produce attractive opportunities to sell strong rallies and buy declines if they coincide with major longer-term resistance and support.

Otherwise, our Momentum2 trading strategy continues to be a top performer, and strong intraday price movements have been enough to keep trending strategies profitable. Breakout1 and Breakout2 strategies could see modest gains, but the prospect of poor extension on price breakouts leaves us biased against these signals until further notice. It serves to note of course that implied volatility on forex options continue to point to further breakouts in price through upcoming trade. We certainly will not ignore such signals, and as such, we advise caution against using excess leverage through trying market conditions.

DailyFX+ Forex Market Conditions Outlook

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 three months 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 90 trading-day range. A very low number tells us that price is currently at or near quarterly 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 quarterly range.

Range High – 90-day closing high.

Range Low  –  90-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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