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As Volatility Drops Trading Approach Should Change

As Volatility Drops Trading Approach Should Change

John Kicklighter,

Talking Points:

  • Volatility is cooling and strong, definitive market moves are cooling alongside a notable drop in participation
  • While we can't write off the chance of a big risk or mon pol skew move, probabilities should dictate trading approach
  • Tactical opportunities between event risk, technical patterns and deeper markets are preferable to 'thematic' positions

See the DailyFX Analysts' 2Q forecasts for the Dollar, Euro, Pound, Equities and Gold as well as our favorite 2016 trading opportunities in the DailyFX Trading Guides page.

Volatility measures across the financial system are easing. Considering participation (volume) usually follows market activity levels, we may be seeing a further significant downshift in trading conditions from where we were at the beginning of the year. Seasonal measures show that April typically brings lower volatility measures via the equities-based VIX measure. And, the gradual moderation of influence through major themes - relative monetary policy, catalyzing risk trends, China, etc - reflects a crowd that is more circumspect on trend. While this doesn't ensure another swell isn't on the horizon, it suggests they are less likely to be contagious if they do appear. That should shape our trading approach heading into a new month and quarter. We talk market conditions for traders in this weekend Strategy Video

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