How to Trade in a Slow Forex Market (Low Volatility)

Posted by Fullerton Markets on June 28, 2019 at 11:26 AM

Most Forex traders would have come across this phrase somewhere along their trading journey: “The trend is your friend, until it ends.” Many make the mistake of trading in all market conditions, resulting in the loss they felt when the strategy doesn't work during certain periods.  That mostly happens especially when the market is erratic or too choppy, which results in your trading accuracy and effectiveness to fall. 

Below is an example of a ranging market (EUR/CAD) which has been ranging in the 300-pips band. 

The Ranging Market of EUR/CAD

The ranging market of EUR/CAD

As a trader, you should learn to determine the Forex market conditions so that you can tweak your strategies accordingly. There are a few things you can do if you encounter a market period of low volatility:

1. Take a Break

The fastest way to make money is, in fact, through capital preservation. Most traders do not preserve their capital long enough to make substantial profits. So, if the erratic market conditions do not suit you, don’t trade during that period. Remember, you don’t need to trade every day or even week.

2. Use a Range-bound Strategy

This could be the most straightforward answer ever. As a trader, we should be able to adapt to all market conditions. We can utilise a range-bound strategy in a ranging market but do note that low volatility in a ranging market produces the most erratic false breakouts and stop hunts. One must then adjust their stop loss and lot size accordingly.

One may ask, how do we then determine whether the market is ranging? A powerful tool that some traders use to check the market condition is the Exponential Moving Averages (EMAs). A ranging market is indicated by not-so-obvious support and resistance, as well as candles that are not moving in a clear direction.

Below is an example with the blue line as the 8-day EMA and red line as the 21-day EMA. You can see that the EMAs have no clear direction and are cutting into each other frequently.

The Exponential Moving Averages' (EMAs) Graphic

The Exponential Moving Averages' (EMAs) Graphic

And if we zoom in, we can find a good ranging period and a choppy period from the charts below.

The Good Ranging Period and A Choppy Period

The good ranging period and a choppy period

In conclusion, a low-volatility market may not be the most ideal market to trade in as the market is not certain as to which direction to move off in. The best thing you can do is to not trade at all until a clear direction is seen or when you can determine clear range-bound conditions to utilise your range-bound strategy.


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Fullerton Markets Research Team

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