Trading Education: In volatile markets, you have to pick your spots (and hope a little)....

Author: Greg Michalowski | Category: Education

"Trade the wide", and rely on your technical tools.

When the markets are volatile and influenced by lots of forces, you really don't know what is around the next corner.  

So you have choices, exit and wait for the market to calm down, or be really patient, pick your spots and hope the "market" agrees when "the spot" is reached.

Take the EURJPY.  The hourly chart below shows lots of volatility. Lots of ups and downs and the over the last few days as the stocks have gotten crazy, this pair can whip around.  

However, if you apply technical tools that you trust and most importantly, the "market" tends to follow, you can define some levels "on the wide" that might give you a low risk trading opportunity.  

I like the fibonacci retracements, and in particular the 50% midpoint, as a proxy for bulls and bears.   I also like the 100 and 200 bar MAs.  That is no secret for those who follow me on Forexlive (or who read my book). 

If you put a Fibonacci retracement of the move down from the Friday high to the low today, the 50% comes in at 135.732.   The 200 hour MA at the time of the move higher  (green line) comes in at 135.73 too.  

With those two levels at the same level, it become the "hope level" for those looking to trade as the price moved higher earlier today.  That is a wide level to eye and patiently wait for.  

If the price stalls, you have the chance for a rotation lower and because of the volatility, the reward can easily be a multiple of the risk. 

If there is momentum on the break above, get out.  You have to give a little space in a volatile market but you don't need to risk a lot of pips. Remember you are "hoping" that "the market" sees what you see and jumps in with you.  

SUMMARY:  The lesson in volatile markets, is to be patient. Pick your spots to trade "on the wide".  Don't force things.  When the price is right, go in the water and hope.  Hope that the "market" sees what you see.   If you use tools that "the market" tends to use like the 50% retracement and the 200 hour MA, you might just get lucky, your hope turns to reality and you have a nice winner, on a very difficult trading day.