Sunday, May 4, 2014

OmiCronFX’s primary concern is avoiding losses | Aussie breaks down, but not for long

Volatility is a measure of the magnitude of price movement over time. Like everything else in Foreign Exchange trading, one is always looking for balance. Too much volatility causes problems because initially profitable trades can relatively quickly go into reverse in a large move in the wrong direction, leading to loss, whereas volatility that is too low means positions can sit for extended periods going nowhere, or oscillating around the entry point – not making profit but not negating the entry signal either, which would allow the trade to be terminated and the trader to move on.

Right now, volatility is at the lowest it has been in the Forex market in the last number of years. Last week one trader for a large institution, whose words were reported by the Dow Jones Newswire, likened the situation to that which is supposed to pertain in war – he said he was undergoing “extended periods of absolute boredom which were punctuated by moments of sheer terror”.

We know what he means. A very flat market last Friday woke up for a short period after the release of the US Non Farm payrolls report. Suddenly OmiCronFX had five out of its six positions moving in perfect harmony into useful profit. Then the whole situation turned around, went into reverse and we found ourselves right back at the close of business where we had started the day.

It would seem that the market came around, after a short time, to the belief that a majority of the Federal Open Market Committee, which includes Janet Yellen herself among its number, holds that the massive increase in jobs for April, 288k against 210k expected, is due primarily to part-time and lower paid positions, and the reduction in the unemployment rate is because of a significant lowering of participation in the workforce. All of this means continued low consumer spending power and therefore contained inflation, signaling a long delay in raising core interest rates. Result: no appreciation of the US dollar for the foreseeable future.

None of the positions that showed profit after the NFP report have been stopped out. And that points to the prime concern at OmiCronFX: If one can avoid losses during difficult trading conditions, profits will follow when the environment changes.

Aussie breaks down, but not for long

On Friday we discussed the AUDUSD pair and the fact that it needed to break through support in order to make another lower low so as to preserve its downtrend, in expectation of which we had taken a short position. We opined that the US Non Farm Payroll outcome later in the same day might do the trick.

Well, all of that went as predicted, expect for one small detail: As mentioned above, the whole thing went into reverse before the end of the day. This is how it progressed, up to the close of business on Friday:

 Will there be a delayed reaction in the initially indicated direction when serious trading gets underway this week (today, Monday, is a bank holiday in London)?

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