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Breakout Forex Trading Signals Prove Accurate, Range Trading Systems Suffer

by ForexNews
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By ForexNews - Posted on October 16th, 2008
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The ongoing financial market crisis has made for tremendously volatile conditions in global forex markets, and our volatility-oriented forex trading signals have outperformed through record price movements. Forex options markets continue to forecast especially sharp price movements in the week ahead, but it does serve to note that implied volatility on major currency options has actually fallen from recent peaks. Regardless, we believe that Breakout-oriented strategies will continue to outperform through the foreseeable future, as incredible shifts in market sentiment forces major volatility throughout currency markets.

 

Automated Forex Trading Strategies

DailyFX+ System Trading Signals – Breakout trades have predictably performed well through recent forex trade through tremendous currency volatility, and forecasts for similarly sharp price moves in the week ahead leaves our bias towards these volatility-oriented trades. Pay special attention to “Breakout2”, as it has been one of our best-performing strategies through recent price action. “Momentum2” has likewise generated impressive profits through strong trend moves, but “Momentum1” has actually lost through the same stretch. “Momentum1” is a longer-term strategy, and it tends to do poorly during times of extremely choppy price action.

Both Range strategies have been the worst-performers through recent trade, as these strategies have frequently tried to buy strong price declines or sell sharp rallies—hardly a sound strategy in times of market stress. That said, we would place great caution on any “Range1” or “Range2” trades through the foreseeable future; we prefer to wait until our individual currency pair “Volatility Percentiles” drop below 75 percent before attempting to use range trading strategies.

Forex Discretionary Strategy Outlook

Speculative Sentiment Index Trading Signals – Our Speculative Sentiment Index signals have captured respectable profits as of late, but we see that a sharp drop in open interest across major currencies may weaken the strength of individual currency signals. Visit our Forex Trader Sentiment and Positioning Thread on the FX Forum to discuss these signals.

Dynamic Carry Trade Basket – Please see our weekly report on Carry Trades for a better idea on what to expect through short-term trade: Forex Carry Trade Outlook.

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 three months 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 quarterly 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 quarterly 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.

The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. FOREX CAPITAL MARKETS, L.L.C.® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. FOREX CAPITAL MARKETS, L.L.C.® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FOREX CAPITAL MARKETS, L.L.C.® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.

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