DailyFX+ System Trading Signals – Our Breakout trading signals remain attractive on elevated currency market volatility, but our Momentum strategy trades have actually been the top performers through the past month of trade. The "Momentum2" strategy is currently experiencing its best monthly performance in recent memory. In our experience, strategies that do extraordinarily well in a given string of weeks will not necessarily do well through subsequent trade. That is to say, "Momentum2" is not necessarily our favored strategy at the moment. We would instead continue to concentrate on "Breakout2" for short-term trades and "Momentum1" for overall direction, but we may continue to stay away from both Range trading systems until volatility drops significantly more.
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.
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