Low FX Volatility Ideal for Price Action Models

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I keep reading reports about how little money can be made in FX in the current low volatility environment. The media goes on about how volatility is at historic lows and “nobody” is making money. While I respect that long term positions are going nowhere and cost of carry is a squeeze, intra-day price action has been risk friendly and profitable, with our model.

When reading a public commentary on any matter, one must consider the source and the context. In trading, if one were to place all the trading approaches on one continuum, the spectrum would be virtually endless. We know that every individual actively trading in the market will bring a different thought process and history of experiences to the table. So when somebody writes an article about how the low volatility makes profits unachievable, it is coming from one persons (and only one) perspective and has no merit. Therefore, by virtue of the media, any person who has not realized gains will feel justified by the public comments written by bank analysts or FX journalists. Then one feels compelled to share the justification that matches their own experiences, further, which sends the rationalization widespread. This is the character and fruit of media concerning anything published. We need to read between the lines and discern the truth/reality for ourselves.
A large contributor to success in trading is to use your resources wisely. Filter the information in alignment with the parameters you have tested and established for yourself. I tell traders the same as I have told many athletes, your greatest weapon on the road to success is the depth of understanding of one’s self. Most people cannot see themselves beyond their current limited perception of themselves. Therefore, they are resistant to input in the form of guidance. Now there is a difference between guidance and dictation. Guidance is assisting one in seeing their world more clearly to enable prudent decisions (not making decisions for them) in the process of growth. Dictation, in this case, would imply one is giving specific directives as to what actions to take. Meanwhile, the dictator cannot possibly fully comprehend the web of complexities that make up the individual in question. A mentor, on the other hand, can offer a balanced approach discerning proper guidance, information and direction that the individual can customize.

When I first began to study FX in 1998, I went through the natural process of exploring the different ways one can analyze and trade the market. It quickly became clear to me that I would be in a most adaptable position if I were to study price behaviors and find consistencies, I would be more empowered, given my psychological profile, to adapt to changes in volatility. My curiosity was about my level of vulnerability should the market dynamics (volatility) change. When trading with a substantiated price action based model, there are specific times and market conditions that we find favorable to trade, likewise, there are specific times we avoid being drawn in.

Market volatility is continually changing, through long term economic cycles, crisis, FED money pumping, Intra-month, Intra-week, intra-day, at specific hours. We have refined enough insight that we can even identify distinct changes within the minutes of the hour. Through our observation of patterned price behaviors, we remain consistent in our trading opportunities regardless of sentiment, macro drivers and other unanticipated changes in market trading conditions.  We can literally identify changes in volatility across the spectrum in real time and make the appropriate decisions in the moment. The advantage to understanding price behavior is that it is consistent over time. One is not forced to continually change mathematical parameters to keep up with the unpredictable shifts in volatility.  Some experienced professional traders certainly have the skills to successfully apply mathematical models. However, it can be very difficult for the developing or aspiring trader who does not have the aptitude to refine the parameters in a transitory market.

In summary;

  • Read between the lines.
  • Your understanding of yourself is your secret weapon – explore and challenge yourself to grow.  The more you know, the more your grow.
  • Don’t try to copy your mentor.  Let the mentor guide you through a growth process.
  • Price action based models are highly and consistently profitable in any market environment.

I’ve pasted a quote from a previous blog. I thought it was worth the reminder:

“Trading is a way of life that can saturate our existence. We live the all-consuming market and our positions. Everywhere I go, I relate my observations, experiences and insights to my trading life. Years of trading experiences develop an intuition, an insight into processes, decision making, human behavior, pattern recognition, emotional drivers and more. The value of an experience lies behind what is seen. The foundation of wisdom lies within the internalization of the profound elements of the experience, which are unique and personal. When an experience is internalized, it becomes core to understanding, and assimilating, future experiences at a deeper level. To say that we learn from experience is a shallow perspective. Our aim is to train ourselves to routinely find the relevant value in the experience and use that information for future reference in all areas of our lives. The internalization of an experience should become an automatic process that relates to previous experiences and refines our comprehension of the present within a structured framework.”