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Forex Buy/Sell Signals from DailyFX Provide Profitable Trades in Volatile Conditions

By David Rodriguez, Quantitative Strategist
08 September 2008 14:22 GMT

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Preferred Forex Buy/Sell Strategies

The recent spike in volatility leaves our current bias leaning towards Breakout trades, and we will take advantage of “Breakout” signals from our new DailyFX+ Currency Trading page. In terms of DailyFX Analyst reports, we continue to favor Speculative Sentiment Index-based trades, while Jamie Saettele’s “Picking Tops and Bottoms” report likewise continues to perform respectably. We would underweight DailyFX+ “Range” signals, while similarly placing caution on any trade ideas from the DailyFX “Pairs to Range Trade” report.

Discretionary Forex Trading Strategy Outlook

Speculative Sentiment Index Trading Signals – Our Speculative Sentiment Index trading signals have captured good price movements as of late, as major currencies have embarked on fairly extended trends. Trading the SSI typically is most effective during strongly trending markets, and the prospect of continued price trends bodes well for these signals. Visit our Forex Trader Sentiment and Positioning Thread on the FX Forum to discuss these signals. 
Picking Tops and Bottoms – This difficult-to-classify strategy has performed well as of late, and we see little reason to shift our bias away from these trades. 

Pairs to Range Trade – Major currencies continue to break out of their medium term trading ranges, and we would advise against placing too much weight on range trading strategies. The typical high-risk/low-reward range trade tends to underperform in strongly trending markets. 

Automated Forex Buy/Sell Trading Systems Outlook

DailyFX+ System Trading Signals – Pay special attention to attractive Breakout and Momentum trades through the near term, as they should continue to outperform in current forex trading market conditions. Our “Range” signals currently show less promise, and traders should underweight or proceed with caution with any such trade ideas. 

Dynamic Carry Trade Basket – Please see our weekly report on Carry Trades for a better idea on what to expect through short-term trade: Forex Carry Trade Outlook.

DailyFX Forex Market Conditions Summary

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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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08 September 2008 14:22 GMT