The last couple of months have seen levels of extremely low volatility in both equities and the forex space. Zerohedge reported on September 2017 as the quietest September on record.
FX hasn’t been much better, with Bloomberg running the ominous headline “FX Markets Are Stuck in Low-Volatility Quicksand With No Escape” on the 11th of last month. Two items from the Bloomberg piece stuck out at me.
Here is the first:
And now the second:
So, we’re in a low volatility period. Markets are stuck, and they might stick being stuck for a while.
What does this mean for traders?
Well boo hoo right? Our job is to still make money. But it’s been much harder for disciplined traders. The reason is that the low volatility started more than two months back – and at that point, there were no Bloomberg headlines confirming your beliefs. You were completely on your own. In fact, you probably felt pressured to keep trading the same way you’ve always been. If you succumbed to that pressure, you’ve probably gotten burnt.
I’ll share my stats – my trading frequency is less than a third of what it normally is. Did I know we were entering a low volatility period? No. I assumed that when the Northern Hemisphere finished up with their summer holidays, the doldrums of June, July and August would be over. Wrong.
What I did do is stick to my rules and when I saw markets going nowhere, I sat on my hands.
Frustrating? Yes. But it’s all part of the game. With that in mind, let’s look at three interesting markets that may setup positions for us this week. Remember though, if these aren’t A1+ setups, don’t even consider ‘em.
The EURUSD is finally doing something interesting. Could volatility be picking up? I’ve written about the head and shoulders before and said that a break and retest of the neckline is what mattered.
We saw the neckline (I have it drawn here at about 1.17) fail…but have we seen the retest?
Arguably, yes. Friday’s NFP spike and collapse is very bullish for the USD. Ideally, it would have gone just a little bit higher…
Trade idea: I’d like to see how price performs today. If we see a fall in price today, that would be a bad sign for me for the continued downside. Instead, a small retrace today, followed by the rest of the week moving lower would be close to a +A1 setup for me.
I think USD strength is set to continue in the Yen. Price is hugging the 114.30 level and it’s this trader’s opinion that we’re going to see a pop.
Trade idea: Wait for the pop. And retest. And bounce. Then it’s time to go long. Targets around 118.00, some 400 pips away.
The CADJPY is toying with a very interesting level of late – 89.50.
We’ve seen price reverse repeatedly at this zone…and we’re right back up there in what could be the early stages of a downtrend. I’m defining the downtrend simply as a sequence of lower lows, and lower highs.
The current “lower high” is what we’re waiting for now. And if it sets up:
Trade idea: A nice big bearish candle rejecting the current level sets up a short opportunity to 87, about 200 pips away.