Dailyfx individual currency pair conditions and trading strategy bias

Forex Strategy: Traders Predict Big Currency Moves Ahead.

Big data analysis, algorithmic trading, and retail trader sentiment.

Article Summary: A pronounced jump in forex volatility expectations leaves us in favor of high-volatility trading systems going forward. For our proprietary trading systems, this means favoring “Breakout Opportunities/Breakout2” system trades across most pairs. The table below indicates which currencies seem more or less likely to see major volatility.

DailyFX PLUS System Tradi n g Signals – An important jump in forex market volatility warns that major currency pairs may see big moves in the week ahead, and we will accordingly favor volatility-friendly Breakout strategies across most pairs.

Last week we favored breakout trading in Japanese Yen currency pairs, and indeed our sentiment-based trading strategies performed well through noteworthy volatility. Forex options traders predict that JPY pairs will continue to see big moves, and we see no reason to change our trading bias.

Those same traders are now pricing in large moves across US Dollar pairs as well, and we will accordingly shift towards breakout trading across major forex pairs.

DailyFX 1-Month Volatility Index versus S&P 500 Volatility Index (VIX) 2011 - Present.

Our volatility percentiles (shown in the table below) are almost all near 100%; forex options traders predict that volatility will be the highest it has been in at least 90 days.

Past performance is not indicative of future results, but we will often see our proprietary “Breakout Opportunities/Breakout2” trading system do well in these market conditions. The table below details which currency pairs we believe seem more likely to see big volatility in the week ahead.

DailyFX Individual Currency Pair Conditions and Trading Strategy Bias.

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.

To receive the Speculative Sentiment Index and other reports from this author via e-mail, sign up to David’s e-mail distribution list via t his link .

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Volatility Percentile – The higher the number, the more likely we are to see strong movements in price. This number tells us where current implied volatility levels stand in relation to the past 90 days of trading. We have found that implied volatilities tend to remain very high or very low for extended periods of time. As such, it is helpful to know where the current implied volatility level stands in relation to its medium-term range.

Trend – This indicator measures trend intensity by telling us where price stands in relation to its 90 trading-day range. A very low number tells us that price is currently at or near 90-day lows, while a higher number tells us that we are near the highs. A value at or near 50 percent tells us that we are at the middle of the currency pair’s 90-day range.

Range High – 90-day closing high.

Range Low – 90-day closing low.

Last – Current market price.

Bias – Based on the above criteria, we assign the more likely profitable strategy for any given currency pair. A highly volatile currency pair (Volatility Percentile very high) suggests that we should look to use Breakout strategies. More moderate volatility levels and strong Trend values make Momentum trades more attractive, while the lowest Vol Percentile and Trend indicator figures make Range Trading the more attractive strategy.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES IS MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION.

OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice. The FXCM group will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance contained in the trading signals, or in any accompanying chart analyses.

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

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Past performance is no indication of future results.

DailyFX is the news and education website of IG Group.

Volatility Favors Breakout Strategies.

02/15/2013 9:00 am EST.

Quantitative Strategist, DailyFX.

Forex market volatility expectations remain high, and we continue to favor volatility-friendly breakout trading systems, says DailyFX quantitative strategist David Rodriguez .

A continued surge in forex market volatility leads us to believe that volatility-friendly trading strategies may continue to outperform through the coming week of trading. Past performance is not indicative of future results, but it is worth noting that several of our sentiment-based trading strategies have historically done well in times of such strong market moves.

Volatility remains especially elevated in Japanese yen currency pairs as recent controversy over Japanese monetary policy gives reason to believe that the currency will see noteworthy price swings. The US dollar likewise eyes big moves as the Dow Jones FXCM Dollar Index (USDOLLAR) may have hit a short-term reversal point as it hit fresh multi-year highs.

DailyFX Forex Volatility Indices.

Click to Enlarge.

Our DailyFX volatility indices continue to trade near year-to-date highs and suggest overall markets will remain volatile. Said indices measure volatility expectations seen through FX options prices and serve as traders’ best guess as to how much markets will move within a specific stretch of time.

We use those same market prices to derive our “volatility percentile” figures in the table below. These percentiles compare current volatility expectations with the past 90 calendar days, and our statistical studies show that breakout-based trading strategies have historically done well when these figures have been above 75%.

Strong moves similarly warn against employing range trading-based strategies on the risk of significant breakouts in price.

View the table below to see our strategy preferences broken down by currency pair.

DailyFX Individual Currency Pair Conditions and Trading Strategy Bias.

Click to Enlarge.

Volatility Percentile – The higher the number, the more likely we are to see strong movements in price. This number tells us where current implied volatility levels stand in relation to the past 90 days of trading. We have found that implied volatilities tend to remain very high or very low for extended periods of time. As such, it is helpful to know where the current implied volatility level stands in relation to its medium-term range.

Trend – This indicator measures trend intensity by telling us where price stands in relation to its 90 trading-day range. A very low number tells us that price is currently at or near 90-day lows, while a higher number tells us that we are near the highs. A value at or near 50 percent tells us that we are at the middle of the currency pair’s 90-day range.

Bias – Based on the above criteria, we assign the more likely profitable strategy for any given currency pair. A highly volatile currency pair (volatility percentile very high) suggests that we should look to use breakout strategies. More moderate volatility levels and strong trend values make momentum trades more attractive, while the lowest vol percentile and trend indicator figures make range Trading the more attractive strategy.

By David Rodriguez, Quantitative Strategist, DailyFX.

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FXCM/DailyFX Signals and Strategies.

FXCM/DailyFX Signals and Strategies.

This is a discussion on FXCM/DailyFX Signals and Strategies within the Forex forums, part of the Markets category; The US Dollar surge seems like the beginning of a much larger move, and our volatility-friendly and trend-following trading strategies .

Past performance is not necessarily indicative of future results.

While past performance is not necessarily indicative of future results, our sentiment-based breakout and momentum trading signals have usually performed better with higher volatility. On the other hand, the range trading strategies tend not to do as well.

Past performance is not necessarily indicative of future results.

DailyFX trading signals are available as automated strategies at FXCMapps.

Past performance is not necessarily indicative of future results.

The Dow Jones-FXCM Dollar Index (ticker: USDOLLAR) is 0.38 percent higher from the open after moving 86 percent of its average true range, and the rebound may gather pace ahead of the FOMC Minutes as we see a growing discussion to taper the asset purchase program.

Past performance is not necessarily indicative of future results.

Beyond the FOMC Minutes, we also have Fed Chairman Ben Bernanke scheduled to testify in front of Congress tomorrow at 14:00 GMT, but the central bank head may refrain from saying anything new as the committee sticks to its highly accommodative policy stance.

Past performance is not necessarily indicative of future results.

It was interesting to see that comments from Fed dove Charles Evans sparked a bullish reaction in the dollar as he struck an improved outlook for the U. S. economy, and we may see the USDOLLAR continue to mark fresh highs over the near to medium-term as the central bank drops its dovish tone for monetary policy.

Past performance is not necessarily indicative of future results.

The Tidal Shift Strategy has since given a signal to buy USD/JPY. The system recommends entering this trade at any price between 103.272 and 103.748. The 14-period Average True Range on a daily chart is 0.19, so the trailing stop loss has been set at 102.559.

Past performance is not necessarily indicative of future results.

Tidal Shift is a trend trading strategy that aims to catch shifts in trend using trader sentiment as an indicator. The strategy looks to buy when the Speculative Sentiment Index reaches its lowest value for the past 145 trading hours, and looks to short when it reaches its highest value for the past 145 trading hours. The system is available for automation for all FXCM Trading Station accounts via the Mirror Trader platform.

Past performance is not necessarily indicative of future results.

Furthermore, volatility is once again exploding higher off of an intermediate low.

Past performance is not necessarily indicative of future results.

USD-long positions are especially attractive in currencies with higher volatility prices.

Past performance is not necessarily indicative of future results.

DailyFX trading signals are available as automated strategies at FXCMapps.

Past performance is not necessarily indicative of future results.

The ratio of long to short positions in the USDJPY stands at 1.45 as 59% of traders are long. Yesterday the ratio was 1.22; 55% of open positions were long.

Past performance is not necessarily indicative of future results.

Long positions are 11.0% higher than yesterday and 30.5% above levels seen last week. Short positions are 6.8% lower than yesterday and 24.7% below levels seen last week.

Past performance is not necessarily indicative of future results.

The trading crowd has grown further net-long from yesterday but unchanged since last week. The combination of current sentiment and recent changes gives a further bearish trading bias.

Past performance is not necessarily indicative of future results.

As the ECB continues to push into uncharted territory, the policy outlook is likely to produce further declines in the EURUSD, and the head-and-shoulders formation may continue to take shape in the days ahead as it retains the range-bound price action carried over from the previous week.

Past performance is not necessarily indicative of future results.

As the pair appears to be carving a lower top just below the 1.3000 handle, we are still looking for a move back towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50, and we may see the bearish setup play out in the month ahead as the interest rate outlook deteriorates.

Past performance is not necessarily indicative of future results.

The signal was issued because our Speculative Sentiment Index (SSI) has hit its most extreme negative level for the past 145 trading hours at -1.2423, which suggests that the EUR/USD could be trending upwards.

Top Trading Strategy in Current Market Conditions.

Big data analysis, algorithmic trading, and retail trader sentiment.

- Low FX volatility leaves us looking to buy low/sell high until further notice.

FX market volatility trades near record-lows, and the US Dollar, Japanese Yen, and other currencies seem likely to stick to big ranges. Here’s how we’re trading.

Such slow market conditions keep us squarely focused on range-trading strategies. That is: buying low, selling high. This seems simple in concept and it is. In fact our data on 12 million real trades shows that the majority of retail traders do exactly that—ra n ge trade .

The difficulty is that many of those same traders are less likely to trade in those conditions. This seems somewhat irrational, but realistically it comes down to a simple factor: boredom. How might we counteract this natural tendency?

Forex Volatility Prices Continue to Trade near Record Lows, Price Action Likely to Remain Slow.

Data source: Bloomberg, DailyFX Calculations.

There’s little hiding the fact that currency movements have slowed, but instead of focusing on the lack of volatility we’ll concentrate on existing trading opportunities. The DailyFX currency pair conditions table below underlines which pairs are more or less likely to stick to tight trading ranges based on current volatility prices.

Of note are tight trading ranges in Japanese Yen currency pairs as well as a handful of USD majors. Our Senior Strategist highlights potential range trading opportunities in the USDJPY as it trades near important resistance, while the Euro/US Dollar exchange rate itself may have found an important range low.

Until volatility prices move higher we’ll continue to favor range trading. What happens when volatility inevitably surges? Keep track of changing conditions with future e-mail updates via my distribution list .

D ailyFX Individual Currency Pair Conditions and Trading Strategy Bias.

Automate our SSI-based trading strategies via Mirror Trader free of charge.

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.

To receive the Speculative Sentiment Index and other reports from this author via e-mail, sign up to David’s e-mail distribution list via t his link .

Volatility Percentile – The higher the number, the more likely we are to see strong movements in price. This number tells us where current implied volatility levels stand in relation to the past 90 days of trading. We have found that implied volatilities tend to remain very high or very low for extended periods of time. As such, it is helpful to know where the current implied volatility level stands in relation to its medium-term range.

Trend – This indicator measures trend intensity by telling us where price stands in relation to its 90 trading-day range. A very low number tells us that price is currently at or near 90-day lows, while a higher number tells us that we are near the highs. A value at or near 50 percent tells us that we are at the middle of the currency pair’s 90-day range.

Range High – 90-day closing high.

Range Low – 90-day closing low.

Last – Current market price.

Bias – Based on the above criteria, we assign the more likely profitable strategy for any given currency pair. A highly volatile currency pair (Volatility Percentile very high) suggests that we should look to use Breakout strategies. More moderate volatility levels and strong Trend values make Momentum trades more attractive, while the lowest Vol Percentile and Trend indicator figures make Range Trading the more attractive strategy.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES IS MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION.

OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice. The FXCM group will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance contained in the trading signals, or in any accompanying chart analyses.

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

Upcoming Events.

Forex Economic Calendar.

Past performance is no indication of future results.

DailyFX is the news and education website of IG Group.