weekly range

Forex Trading Market Conditions Point to Range Trading Strategies

Monday, 23 February 2009 15:07:02 GMT  |  David Rodriguez, Quantitative Analyst

Our forex trading signals have had fairly mixed results as of late, as unpredictable market conditions hurt the viability of key trading strategies. Early-week breakouts in key currencies made our range trading strategies initially unprofitable, but a quick reversal of fortunes had range strategies as relative outperformers on the week's close.

Continued declines in forex options market volatility expectations support outlook for our range trading strategies, but we remind traders that markets remain especially unpredictable as of late. Our confidence in our range trading bias remains low, and we advise traders to keep a close watch on potential market deterioration.

Forex Trading Automated Systems Outlook

DailyFX+ System Trading Signals – Difficult market conditions meant that few of our trading systems did well through the past week of trade, but we hope that the recent slowdown in volatility will be sustained through the near term. Our trading biases are best when the forex market is consistently volatile or currencies remain in ranges. If market conditions remain fairly constant, then we may take a specific trading bias and stick to it for weeks at a time. Rapid shifts and relative market unease leave clear risks that we may be stuck in unfavorable trades through changing market environments. We will weight our trades towards Range1 and Range2, but it may nonetheless be worthwhile to watch Momentum2 signals; the strategy sometimes does well even in low-volatility conditions.

DailyFX+ Forex Market Conditions Outlook

NOTE: Data has once again been changed. Due to the ineffectiveness of the 30-day horizon, we are returning to the original 90-day time horizon.

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 –  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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