Forex Volatility Remains Low—Our Data Favors Using These Strategies

08/18/2015 9:00 am EST

Focus: FOREX

David Rodriguez

Quantitative Strategist, DailyFX.com


David Rodriguez, of DailyFX.com, explains that forex volatility risks remain low and since his data suggests the average retail trader does well in these conditions, he recommends following this trading strategy moving forward until further notice.


• Forex volatility risks remain low, point to slow market moves
• Our data suggest the average retail trader does well in these conditions
• We favor range-trading strategies until further notice

Low forex volatility prices point to another slow week for the US dollar and broader currencies. How might we trade?

A study of retail trader performance shows that most tend to do well during periods of lower intra-day FX market volatility. If that relationship holds across larger time periods, we might expect traders will, on average, tend to outperform during similar periods of slow market moves. Why exactly?

Put simply, most retail traders tend to range trade; buy when prices are low and sell when prices are high. And indeed we might expect such a trading technique to do well when prices stick to broad trading ranges.

Thus we look to the coming week and potentially next several weeks as an opportunity for range trading. Until we see a meaningful bounce in volatility prices/expectations, we will see little reason to change our trading biases.

Forex Volatility Prices Remain Low, We Favor Range Trading

chart
Data source: Bloomberg, DailyFX Calculations
Click to Enlarge

See the table below for full detail on market conditions and preferred trading strategies.

DailyFX Individual Currency Pair Conditions and Trading Strategy Bias

chart
Click to Enlarge

By David Rodriguez, Quantitative Strategist, DailyFX.com

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