- Forex volatility risks remain low, point to slow market moves
- Our data suggest the average retail trader does well in these conditions
- We favor range-trading strategies until further notice
Low forex volatility prices point to another slow week for the US dollar and broader currencies. How might we trade?
A study of retail trader performance shows that most tend to do well during periods of lower intraday FX market volatility. If that relationship holds across larger time periods, we might expect traders will, on average, tend to outperform during similar periods of slow market moves. Why exactly?
Put simply, most retail traders tend to range trade—buy when prices are low and sell when prices are high. And indeed we might expect such a trading technique to do well when prices stick to broad trading ranges.
Thus we look to the coming week and potentially next several weeks as an opportunity for range trading. Until we see a meaningful bounce in volatility prices/expectations we will see little reason to change our trading biases.
Forex Volatility Prices Remain Low, We Favor Range Trading
Data source: Bloomberg, DailyFX Calculations
See the table below for full detail on market conditions and preferred trading strategies.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com