News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Bullish
Wall Street
Bearish
Gold
Bearish
GBP/USD
Bearish
USD/JPY
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • Use this technical analysis pattern recognition skills test to sharpen your knowledge: https://t.co/Qgz89PTxnu https://t.co/HUYJzEkYiT
  • #Gold prices put in a major breakout last month and, so far, buyers have held the line. But a really big Fed meeting is on the calendar for this week. Can Gold bulls hold? Get your market update from @JStanleyFX here: https://t.co/NGRTSfceOW https://t.co/QkSUORIQE2
  • Struggling to define key levels? Floor-Trader Pivots assist traders in identifying areas in a chart where price is likely to approach and can be used to set appropriate targets, while effectively managing risk. Learn how to use this indicator here: https://t.co/Ye4m1FMKUW https://t.co/PHK2sqB1jV
  • Top event risk for more than just the Dow and Dollar this week is the Wednesday #FOMC rate decision. What the markets expect sets the tone for how the event impacts price action. My run down of the week and Fed decision: https://www.dailyfx.com/forex/video/daily_news_report/2021/06/12/Dollar-and-SP-500-Breaks-Must-Abide-the-FOMC-Decision-This-Week.html https://t.co/Huvth4f706
  • What suits your style of trading stocks or commodities? Find out what are the differences in these two markets here: https://t.co/BnA07cMV0s https://t.co/AkE7bFRWAt
  • $GBPUSD continues to trade in ranges as volatility dwindles. UK data to play second fiddle to FOMC. Get your market update from @JMcQueenFX here: https://t.co/T0Eg4KaENB https://t.co/GMmZa5L0Il
  • Get your snapshot update of the of market open and closing times for each major trading hub around the globe here: https://t.co/BgZLFljIhZ https://t.co/wlGgQrcK3X
  • What's the difference between leading and lagging indicators? Find out from here: https://t.co/vGx8HCagF5 https://t.co/qnQ8Cx0DKv
  • Dealing with the fear of missing out – or FOMO – is a highly valuable skill for traders. Not only can FOMO have a negative emotional impact, it can cloud judgment and overshadow logic. Learn how you can control FOMO in your trading here: https://t.co/lgDf5cVYOn https://t.co/RJLpBgS43V
  • Currency exchange rates are impacted by several factors. Are different world leaders a contributing factor? Find out here: https://t.co/4jsORznRTE https://t.co/6GrWzkOouM
Trading Volatile Markets

Trading Volatile Markets

Jeremy Wagner, CEWA-M, Head of Education

The USDJPY exchange rate moves to a new record low in the midst of increased volatility. When the 3rd largest economy of the world was hit with the terrible earthquake last week, an already skittish market began to unwind its carry trades.

Volatile markets occur as a result of temporary dislocations of capital. That means the scale of buying volume versus selling volume is off balance. Therefore, prices move erratically until a new equilibrium is reached.

Many traders see a large amount of capital returning to Japan through relief efforts, aide, and paid insurance claims. Therefore, this influx of capital is strengthening the JPY driving the USDJPY exchange rate down to record lows. When you have significantly more sellers than buyers, equilibrium is off balance and the exchange rate moves very quickly.

Trading_Volatile_Markets_body_Picture_1.png, Trading Volatile Markets

So how do we navigate these volatile markets?

First, it is reasonable to expect volatility to continue in the near future. Volatility of the USDJPY, gauged by the ATR (Average True Range – blue line at the bottom of the chart), is at its highest level since June 2010. As a matter of fact, when prices entered that period of volatility on May 6, 2010 (also referred to as the day of the Flash Crash), 14 of the next 23 trading days experienced a daily range of 100 pips or greater. Therefore, we can look for elevated levels of market activity in the next couple of weeks as prices seek out a new equilibrium level. In my opinion, traditional strategies of support/resistance and breakout strategies tend to perform well during times of volatility.

Regarding the risk management on the trade, we need to latch onto 2 key principles to help protect the balance of your trading account during this potentially volatile stretch.

  1. Consider widening stops to accommodate the increased volatility by a factor of 2 or 3
  1. Risk less on your open trades

For example, if you like to trade breakouts with a 40 pip stop loss, look to widen the distance of the stop loss to 80 – 120 pips. Since widening your stop could impact your risk to reward ratio on the trade, I would look to manually move your stop as the price moves in your favor. A good rule of thumb is that if price moves half way to your profit target, then you can move your stop to break even.

How can we risk less on the open trades while widening our stops? Good question. Risk is a function of your trade size. You can widen your stop AND risk less by reducing your trade size. For example, a trader may risk 2-3% of the balance in volatile markets rather than 5% in calmer markets. Let’s look at a specific example. Assume the trader has $20,000 in the account.

Non-Volatile Market Condition

Volatile Market Condition

Starting Balance

$20,000

$20,000

Percentage of Risk

5%

2%

Risk of Balance

$1,000

$400

Lots Traded

$1,000 / 40 pip stop = $25/pip or

25 LOTS

$400 / 80 pip stop = $5/pip or

5 LOTS

An obvious result is the difference in trade size. Remember, volatility is a temporary dislocation of capital. Many times, volatile markets speed up the results of your trade. Therefore, you may be trading in a lower trade size, but the market may also offer you more opportunities over the coming days than you typically trade.

Times like these are very exciting for traders. On many occasions, traders will be willing to give up some sleep to capture the increase in trading opportunities. Keep your emotions in check and trade well!

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES