The currency markets are experiencing a period of low volatility over recent months. 

Since November 27, 2013, the euro/dollar (EURUSD) has gone from a medium term peak in the daily average true range (ATR)22 of 96 pips to 56 pips now.  That’s a 42% reduction in the average range the currency is traveling in a day.

History has a habit of repeating itself and I’ve traded through a period of low volatility before.  With each type of market we experience there’s a learning we can take with us, to make an asset for next time.

Been there, done that, only this time I’ll do it better!

Here are 5 wise actions for trading in today’s low volatility market:

1. Dynamic Versus Static Pip Trades

Changes in volatility highlight the need to have trades with an adaptive number of pips that bend and flex with changes in the market.

For example, if you had a strategy where you always gave yourself a 20 pip stop on the EURUSD, that’s 21% of the average daily range when Daily ATR(22) is 96 pips, but it’s 36% with ATR(22) at 56 pips.  In low volatility you’re giving the trade a much wider scope to move and the duration of your trades are going to be much larger, a bit like watching grass grow.

If you’re using static pips for your profit exit strategy, it’ll take longer to make a profit or get stopped out and the trade will seem like a higher timeframe trade when compared with before.

Dynamic pip trades, where the pip distance of the stop and other exits vary, will adjust for changes in volatility as the market changes.

Have you adjusted your stop and profit exits for changes in volatility?

2. Taking A Fresh Approach For Opportunities

A sound trading strategy is often based on logic and it’s component parts make sense when you break down the meaning of price movements and indicators that you use.

The logic of the strategy is often robust in its own right and can be applied on other timeframes or with alternative exits than you may be used to trading.

In times of low volatility, if a trader’s strategy requires the currency to move, in order to meet the entry criteria, then you can have a lower number of trades, which makes it slower to achieve returns.  Looking for new ways to turn your account over, without deteriorating the quality of your trades, can increase your return.

Are there new ways you can apply your trading strategies and approaches to trading?

3. Don’t Hold Out For The Big Winner

In times of low volatility the frequency of high multiple trades hitting targets can reduce significantly.  Often the set up has a more limited direction follow through before faltering.

Accepting lower profit targets that the market will deliver may help to achieve consistent returns and may be better than suffering through a prolonged drought in earnings.

Are you realistic about what risk multiples the market conditions will deliver on a trade?

4. Market Filters Can Be Our Saviors

Matching trading frequency with market conditions influences trading profitability.  When using any trading strategy I like to have a filter that checks the suitability of market conditions and adjusts the frequency of trading depending on the outcome of that.

Adaptive market rules that make you sit of your hands more often can save a lot of money and heartache.  In the infancy of my trading journey it saved me when I traded into a market crash and I’ve respected and continued to use a market filter ever since.

Do you have a market filter in your trading strategies to guard against overtrading in unsuitable market conditions?

5. Search For Carry Trades

When low volatility is accompanied by low trend, the market is moving slowly.  Where there’s a clear sense of direction the right way, it can be a good opportunity to hold carry trades and pick up leveraged swap interest between currencies where those opportunities can be exploited.

Explore the options with high yielding currencies like the NZD and AUD paired with low rate colleagues.

Are there ways you can pick up the benefit of leveraged interest while the market holds relatively steady?

When the markets have low volatility and aren’t serving big winners up on a platter, take it as an opportunity to review and extend your trading to reach new frontiers.  Challenging times are when real progress is made.

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