Trading Decreased Volatility Breakout (Part II)
Aging Trend: This is the third stage of the trend and is the period of consolidation as the trend comes to maturity. As the momentum of the trend exhausts itself, volatility tends to decrease at this stage of the trend. This is the period where lot of profit taking will take place.
Experienced traders try to get out of their trades at this stage of the trend by closing their positions. This satisfies the appetites of inexperienced traders as they consolidate their positions. Both the bulls and the bears are hesitant to make daring moves at this stage of the trend.
Currency prices have moved by a large amount in the previous period of high volatility. This is the period of consolidation and the prices tend to stay calm during this period. The trend takes a short break and the volatility is low during this stage of the trend.
End of Trend: This is the last stage of the trend and this is the time when the prevailing trend ends and reverses itself after some new information is revealed about a currency that changes the opinion of the crowd. As the market players tend to absorb the information, this results in the rapid adjustment of prices within a short time.
Many stops will get triggered during this stage of the trend. Especially if they have been caught on the wrong side of the market, traders become desperate to get out of their positions. Most know that the trend has come to an end. The best way to preserve their profits is to get out of the trend as early as possible. Experienced traders had already gotten out of the trend during the aging stage of the trend. Most of the traders who are trying to get out now are inexperienced traders.
There is a sharp follow through of the prices in the reversed direction during this stage of the trend. Now you know and understand that within a trend, currency prices can experience decreased volatility followed by increased volatility as the crowd psychology keeps on changing.
You must know that sudden release of a breaking economic or geopolitical news can cause a lot of volatility in the forex market. Traders with open positions during this low period of volatility are the most vulnerable to unanticipated news. This volatility continues as long as the news is not absorbed by the market. Decreased volatility can be found during trending or ranging phases.
When the market shift from high volatility to low volatility or vice versa, this time can be used to profit from the change in volatility. During this time gains can be made from the unsuspecting players and this is known as the Decreased Volatility Breakout Strategy. Deceased volatility provides an excellent opportunity to traders to prepare and profit from an imminent change from low to high volatility.
How do you measure that the change in volatility? There are several technical indicators that can help you visualize the volatility in the currency prices. The success of this strategy lies in measuring the volatility of the forex market correctly. There are various ways to do that.
Two of the most useful indicators that can help you measure the volatility of the currency prices are: 1) Moving Averages and 2) Bollinger Bands. You can also use triangles as one of the best indicators of decreasing price volatility in the currency price charts.
When a particular type of triangle has been identified by the trader, a high probability trade may be in sight. All triangles show decreasing price volatility in the forex market. You can take advantage of the decreasing price volatility in the forex market through identifying the triangle formations. - 23159
Experienced traders try to get out of their trades at this stage of the trend by closing their positions. This satisfies the appetites of inexperienced traders as they consolidate their positions. Both the bulls and the bears are hesitant to make daring moves at this stage of the trend.
Currency prices have moved by a large amount in the previous period of high volatility. This is the period of consolidation and the prices tend to stay calm during this period. The trend takes a short break and the volatility is low during this stage of the trend.
End of Trend: This is the last stage of the trend and this is the time when the prevailing trend ends and reverses itself after some new information is revealed about a currency that changes the opinion of the crowd. As the market players tend to absorb the information, this results in the rapid adjustment of prices within a short time.
Many stops will get triggered during this stage of the trend. Especially if they have been caught on the wrong side of the market, traders become desperate to get out of their positions. Most know that the trend has come to an end. The best way to preserve their profits is to get out of the trend as early as possible. Experienced traders had already gotten out of the trend during the aging stage of the trend. Most of the traders who are trying to get out now are inexperienced traders.
There is a sharp follow through of the prices in the reversed direction during this stage of the trend. Now you know and understand that within a trend, currency prices can experience decreased volatility followed by increased volatility as the crowd psychology keeps on changing.
You must know that sudden release of a breaking economic or geopolitical news can cause a lot of volatility in the forex market. Traders with open positions during this low period of volatility are the most vulnerable to unanticipated news. This volatility continues as long as the news is not absorbed by the market. Decreased volatility can be found during trending or ranging phases.
When the market shift from high volatility to low volatility or vice versa, this time can be used to profit from the change in volatility. During this time gains can be made from the unsuspecting players and this is known as the Decreased Volatility Breakout Strategy. Deceased volatility provides an excellent opportunity to traders to prepare and profit from an imminent change from low to high volatility.
How do you measure that the change in volatility? There are several technical indicators that can help you visualize the volatility in the currency prices. The success of this strategy lies in measuring the volatility of the forex market correctly. There are various ways to do that.
Two of the most useful indicators that can help you measure the volatility of the currency prices are: 1) Moving Averages and 2) Bollinger Bands. You can also use triangles as one of the best indicators of decreasing price volatility in the currency price charts.
When a particular type of triangle has been identified by the trader, a high probability trade may be in sight. All triangles show decreasing price volatility in the forex market. You can take advantage of the decreasing price volatility in the forex market through identifying the triangle formations. - 23159
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Get Netpicks Forex Signals Free. Learn Forex Trading!
posted by X - Men @ 2:58 AM
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