Slow and Steady: Your Guide to Low Volatility Trading

Low volatility trading is nothing new. To the experienced trader, embracing this type of trading in their forex strategy is, in fact, incredibly frustrating, as the amount of opportunity to make significant – or ‘good’ – trades diminishes. However, part of knowing how to trade forex successfully is understanding how to adapt to changing market conditions. This, coupled with this year’s news that central banks are keeping interest rates lower for longer in 2019, means there’s never been a better time to learn more about low volatility trading.

So, in today’s blog post, we’re offering up insights on low volatility markets, providing you with a number of forex tips and tricks for how to trade in them.

What is low volatility trading?

In forex, volatility refers to the amount of risk involved with the changes in currency exchange rates. While higher volatility means that a currency can change dramatically and is often a bigger risk to trade, the potential to make large profits in highly volatile markets is what makes forex trading attractive to day-to-day market players.

Low volatility markets are therefore considered less desirable to trade in, and are considered a more conservative approach to forex trading due to the potential for big wins being significantly lower.

What strategies should I explore in low volatility markets?

Given the market’s current state, in which there appears to be a mixture of a lack of trends and low volatility, traders are finding it difficult to profit in this market. With this in mind, you need to ensure you’re adapting your forex strategy to suit this new way of trading. Below, we’ve detailed 4 tips to help you trade in low volatility markets.

  1. Focus on small wins

It’s common knowledge that, in low volatility markets, traders aren’t able to work towards big wins. Instead, we suggest focusing on lower profit targets that are attainable in this market, as opposed to concerning yourself with high multiple trades.

  1. Look out for breakouts

Within these types of markets, there will be brief periods of time when low volatility markets pick up steam – this typically occurs when new economic data has been released. As a result, when you identify that this is happening, it may be worthwhile to either trade at the end of the day or trade the higher time frame charts.

  1. Pay attention to current affairs

As with any trading market, paying attention to current affairs will help to identify forex signals that impact your strategy and better your potentially profitable outcome. As a result, traders should stay up-to-date with current affairs and world news to help them determine how the market has positioned itself. By doing so, you can ensure that trades are based on what could happen, as opposed to waiting for an actual outcome.

  1. Repeat trades where possible

Minimise the chances of making big losses or poor decisions by picking one side and trading on that side until it stops working for you, rather than trying to trade all over the market. When this stops working for you, this is the time to change your strategy – so keep at it and be patient before switching tactics.
When facing a low volatility market, it’s important to remember that, even when there seem to be a limited number of viable setups, trading successfully is still possible. Spend some time doing some forex technical analysis, adjust your strategy accordingly and build a cache of profits that enables you to take some risks when market volatility picks up. To expand your forex industry knowledge, or to take it back to basics, book a place on our free trading seminar today.