Forex Strategy Outlook: Trading Bias Mixed on US Dollar Volatility.
Recent US Dollar losses have led to impressive gains in our trend-following trading systems, but the overnight USD pullback leaves short-term outlook somewhat mixed. On the one hand, market momentum undeniably favors further US Dollar and Japanese Yen losses. Yet volatility expectations seen through forex options prices remain quite low, and it seems like many traders are pricing in relatively limited price moves in the weeks ahead. Short-term price action will prove critical to our overall Forex Strategy Outlook.Given great uncertainty surrounding near-term forex market conditions, we will maintain our bias towards Range and Breakout systems. If nothing else, our Breakout strategies' relative consistency through varied market conditions give us confidence that they may continue to trade well. To partially hedge against risks that currencies will return to broad trading ranges, we will watch for any worthwhile Range system opportunities. Yet risk on said trades should be kept tight in case of continued trending conditions in the US Dollar and Japanese Yen. Forex Trading Automated Systems Outlook DailyFX+ System Trading Signals Breakout2 and Momentum1 were star performers through the past week of trade with strong anti-US Dollar price moves benefiting the price-following strategies. Momentum2 was caught slightly off-guard with the intra-week shifts in sentiment; it attempted to chase price and got chopped out in key instances. We remain bullish Breakout2 due to its relative resilience across different market conditions, but our market outlook is less favorable for Momentum1. Given the lack of follow-through in short-term volatility expectations, the US Dollar breakdown may occur slowly if at all. Range2 is another favored strategy in the week ahead. The key difficulty with this particular system is that it trades very infrequently. It uses a sentiment filter which takes it out of key currency pairs for extended periods of time-a factor that can be frustrating at times. Of course patience remains key, and the strategy will likely wait for more rangebound market conditions before entering trades worth our while. DailyFX+ Forex Market Conditions Outlook Definitions 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 monthly 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 monthly range. Range High - 90-day closing high. Range Low - 90-day closing low. Last - Current market price. Strategy - 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. Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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|Date:||Sep 21, 2009|
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