8 Strategies for Trading During Low Volatility Markets

8 Strategies for Trading During Low Volatility Markets
May 9, 2017 Charles Green

Traders looking to get good returns usually dislike low volatility markets. In these markets, premiums are narrow and it becomes highly challenging to get a good return. However, this does not mean that traders need to give up or try to force trades in order to get a return. Here are 8 strategies for dealing with lower volatility in the markets:

In addition to what the Chief had to say, here are some trading strategies that you should explore in low volatility markets:

1. Be Honest with Yourself – A trader needs to get real about the situation that they are in. This requires being clear about the type of the market one is in, and what the market is able to give. Here as always, predictions need to be based on actual facts, rather than on the hope of what could occur.  

2. Focus on Smaller Wins – Traders ultimately like to work toward big wins, but this may not be possible in low volatility markets. Instead, rather than high multiple trades, the focus should be on taking in lower profit targets attainable in this type of market.

3. Pay Attention to the News – In low volatility markets, traders need to stay current with the latest news so that they can determine how the market has positioned itself. This way, trades can be based more on what could happen, rather than waiting for an actual outcome.

4. Consider the Size of your Trade – Rather than trading your entire position, mitigate your risk by trading half of your normal position size. In this type of markets, you should avoid trends as they are less likely to keep running for the long term. Instead, traders should take up their profits quickly as they arise.

5. Make use of Marketing Filters – In a low volatility market, a trader may find himself over trading at a time when conditions in the market are not suitable. To avoid this scenario, it is necessary to make use of market filters that will provide information on the suitability of market conditions. This way, it becomes possible to adjust the frequency of trading based on the expected outcome.

6. Keep an Eye out for Breakouts – In the short term within low volatility markets, you will find that there are brief periods when these markets pick up steam. This may typically happen once economic data has been released. When this happens, it may be worthwhile to trade in higher time frames or trade at the end of the day.

7. Look for Carry Trades – The market moves slowly in low volatility markets. One good strategy is to take note of the direction of the market so you can find an opportunity to hold carry trades. When you do this, you should take on leveraged swap interest between currencies that have opportunities that work to your advantage. It is also possible to look at the option of pairing a high yielding currency with those that have low rates.

8. Repeat Trades where Possible – Rather than trying to trade all over the market, pick a side and keep trading on that side until this side stops working for you. When this finally happens, that’s the time to change your strategy. In this way, you minimize the chances of making big losses or decisions that do not bear any fruit.

When facing a low volatility market, remember that even with price action that has slowed down and a limited number of viable set-ups, it is still possible to trade successfully. All that is necessary is for you to adjust the trading strategy that you are using to control risk until the market volatility changes.


Low Volatility Trading Strategies
Low Volatility Trading Strategies

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