*Volatile markets mean larger intraday price swings. Look at the bigger picture for profitability.*
Welcome back to the blog. In the post I am going to talk to you about the current markets, the levels of volatility in FX and equities and why I think keeping things simple and using the basics will keep you profitable. Let’s get right in to it and look at two charts that show the current levels of volatility in the stock markets and FX markets.
The chart above shows the last 3 years of VIX price data which measures the stock market volatility from S&P5000 stock market index pricing. As you can see, despite continued stimulus efforts from the federal reserve and price falling more than 50% from the yearly highs of 2020, stock market volatility is still more than 180% higher than it was at the start of this year.
Volatility effects everything from the pricing of options through to spread fees and costs of trading. With volatility still “high” or at least higher than before the pandemic started, it is wise to assume that trading intraday and lower timeframe moves on Equities is still going to be tougher than it previously has been.
FX Volatility is harder to measure and there are only a few ways retail traders can check up on FX volatility levels. If you have access to Bloomberg or a professional data feed then look up the JPMorgan Global FX Volatility Index under the ticker JPMVXYGL. Alternatively you can calculate it your self using FX pricing and some basic formula/calculations.
Much like in the stock markets, traders have priced in increased volatility in to the FX markets and that is reflected in the charts above. The coronavirus pandemic forced central banks and governments to cut rates, announce emergency fiscal stimulus and even in some cases dip their hands in to stock markets to support them. All of these has large effects and influence on the value of currencies and in the past year has lead to wild swings in currency prices.
I am currently working on coding a simple pricing table and charts that automatically tracks the volatility of FX majors and I will be sharing that on this blog site for all of my readers. You will therefore have access tot he exact same information as the institutions and banks do when evaluating FX volatility.
Keeping things simple.
There are hundreds of technical indicators, chart patterns and analysis techniques that traders use to trade the financial markets. I personally use various indicators across multiple trading strategies when I am analysing and trading the markets. However, trading strategies tend NOT to work in every market and you should know when to trade as well as when NOT to trade. The latter is just as important.
I do believe that the basics of simple analysis such as trend trading does work in almost all market conditions if you pick your entries properly and do not trade too aggressively or risk too much. The chart below shows the 4hr timeframe chart for the FTSE100 index that you will know I have been trading a lot recently.
As you can see, there are no indicators on this chart, only price candlesticks. I have labelled the swing high and swing low points of the last 4 months of trading and I believe it is very obvious to see that the trend was (and is) bearish. Without any indicators or other analysis, I believe one could have entered at least 50% of these trades with successful results by simply waiting for the lower highs to form and selling them into the next bearish legs.
One thing I will point out to you is that everything looks easy in hindsight. Finding trade entries and analysing markets is easy when you have no risk and its “already happened”. Be aware of this when reading about strategies online because it is easy for marketers to make a strategy or even themselves look amazing when you are looking at price action that has already happened.
Let’s look at the FTSE 100 chart with some extra analysis.
I still think that selling the lower highs (retracements) is a profitable trade on the FTSe for the foreseeable future because of the fundamental influences not he UK economy. The technicals support this with the bearish trend now well established.
The 50EMA remains below the 200EMA on almost all timeframes and price is making consecutive lower lows after every retracecment. Price has now pulled back into the 5800 support/resistance zone and a simple bearish trendline drawn across the lower highs indicates the current price to be a good short position entry zone.
I am looking to trade this stock index down to previous support at 5500 and lower. For more information on my analysis and trading of the FTSE100 index, please read the following blog posts linked below.
Trend trading features the most in almost all of my trading strategies. The reason why is because you I believe it is actually possible to be profitable by simply trading raw price action and picking out lower highs, higher lows and price waves with no indicators and if you are struggling to successfully pick trades, this is what you should look at doing.
Yes, indicators can produce more accurate trade entries with larger reward:risk ratios and therefore better returns but if you are struggling to find good trades right now, then look at clearing up your charts. No matter what timeframe you focus on, I am certain that if you just looked at the trends forming and looked for the price waves then you will start to see profitable trade set ups.
The idea of progressing in trading is to first get comfortable placing trades, then focus on entering trades that win more than you lose, then you should focus on increasing your returns by reducing risk and increasing profits. If you are struggling to trade then take a step back, focus on finding winners and then start progressing from there.
If you are interested in learning my personal trading strategies, please consider my Mastering The Markets – Retail Trading Course. Head over to my Trading Education page to check out all of my education packages and the deals available.
All my technical analysis is done using the TradingView platform. You can get access via the link below.
My preferred broker of choice is IC Markets. Low spreads and trading costs really help long term profitability. A link to their site is below.
FTMO Trader Funding Programme.
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DISCLAIMER: None of the information posted on this site is to be considered investment/financial advice. Trading is high risk and you should only trade with money you can afford to lose.