InstaForex: How to stay ahead in quieter markets

Author: Forex Live | Category: Education

The know hows on dealing with slower trading periods

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Lulls in trading can present just as much challenges as periods of great movement and volatility. During quieter intervals however, ranges can be smaller due to the reduced volatility with many institutional traders away from their desks - what is the overall impact of this on your trading?

Firstly, markets are more susceptible to having patches of illiquidity with random moves taking out stops more readily on any lack of order flow. Consequently, these can result in some frustrating trading experiences.

The below article delves into some useful tips to help you keep a level head during periods of stagnation or reduced volatility.

Be on the lookout for surprise events

Always stay on top of upcoming events, releases, or announcements. Just because the market may seem a sea of calm, does not mean that very large moves do not occur across currency markets.

Whether it be some surprise political development in the US with the Trump administration or seismic changes in the Turkish Lira, stay on the lookout. While it is important to note that moves such as these are not to be counted on habitually and are quite rare, they are indeed possible at any time. As such, make sure to keep alert for any major market moving news.

Take a break

Forcing trades and moves can be potentially catastrophic for your trading. Instead, whether it's the dead of summer or the lull of winter, it may be fruitful to factor in a break during your day and make sure you don't trade when you are on holiday.

Time spent away from markets is crucial to help adjust and recover from hours of hawkishly observing the same charts and feeds. The markets will still be there when you return, just make sure you are fresh and in the right state of mine when moves do start happening.

Willingness to reduce intraday targets

Some of the most consistent traders in the world preach smaller profits and trade sizes. In this way you may want to consider taking slightly smaller profits during slower periods and particularly consider taking profits when price pushes into key support and resistance levels which are less likely to break.

For example, if you normally look for 60% of the average true range for your profit target, it may be worth taking even 50% of the average true range instead. Profit is still profit.

The importance of wider intraday stops

At first this can seem counter intuitive, if ranges are narrower shouldn't you use smaller stops too? This is not necessarily so black and white however. To fully understand this point look at the market when it opens each week on a Sunday evening. 

What do you notice? You will see a market that seems slow, yet it can have very quick and strong short-term directional moves. Why is this and what is going in here? This is how an illiquid market moves. Now, if there is a lack of liquidity during normal market hours the same type of price action can occur. This can needlessly take out your stops, so consider reducing your position size and setting wider stops.

Don't sleep on changing market dynamics

Presently, automation has been impacting nearly every area of our lives and FX trading is no exception. Once institutions looked to 'the man', now more and more they look to 'the machine' - this trend is unlikely to stop anytime soon.

Algorithmic trading has increased considerably over the last few years and this is resulting in a key change. The algorithmic trading model involves the 'algos' being switched on during the whole year; computers do not need a holiday.

Their short-term, constant day to day profit profiles means that they are going to be left running during the summer or slower months. Why is this important? Even though the large investors may have key staff on holiday or be away from their desks, the age of automation means that the trading of assets in FX goes on.

Technical levels are still in play

No matter what time of year it is technical levels are never forgotten. The key moving averages are always respected and that means you should do.  Key moving averages like the 50 MA, the 100 MA and the 200 MA will still be respected so these should always be in the back of your mind.

By extension, Fibonacci retracement levels and horizontal support and resistance levels can still be relied upon.

Ranges deserve your attention

Much like technical levels, trading ranges are also of supreme importance throughout the year. For example, if there is a strong range in play, then it is more likely to hold during slower trading periods.

Pay attention to tests of key levels and take a quick look at the news. Are there any key releases that are coming out? If there is not, then the chances of a well-established range holding are strong.

It could be a great location to trade a quick bounce off a key level. Similarly, if a key level looks like breaking during the summer months, and there is little in the way of significant market news, then that break may well be a false break. So, be aware of these two phenomena; strong ranges holding and false breakouts of key levels.

- This article was submitted by Instaforex.

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