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.
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
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