Low Volatility – How To Deal With It

By | August 27, 2014

We are witnessing the lowest currency volatility in more than 10 years, with record levels in certain pairs like Eur/Usd. What that means is that the present market conditions are so boring, it’s as much fun as watching paint dry. It also equates to a trader’s worst nightmare, as very little price movement leads to minimal trading opportunities.

EUR/USD low volatility record: today (26/08/14) marks the 58th consecutive day in which EURUSD has a true trading range below 100 pips – the longest stretch since a 23-day stretch in April-May of 2002. – John Hardy, Head of FX Strategy / Saxo Bank

How To Deal With It

Even though the money-making opportunities are few and far between, the dangers of losing your capital are just as present as in a medium or high volatility environment.

Over-trading  is the number 1 account killer in times like this.The markets are quiet, you have no signal from your system (discretionary or systematic, doesn’t matter) to enter a trade. And I’m not talking just about today, but the past week  or two as well. You feel like you’re wasting your time, that you have to make some money, so you start overriding your system. Even worse, you start looking for a different one.

The key here is that you have to maintain discipline. You can’t control what the market has to offer, but you can and should control yourself. You have to remind yourself that trading isn’t a job where you’re paid by the hour or by the number of trades taken and that no position IS a position. You also have to keep in mind that no strategy or system can win all the time, and that all of them have periods of under-performance. Now is the perfect moment to take time off from watching the charts and go out, exercise, read books, or do any other activity that you enjoy.

The good news is that markets are cyclical. Low volatility periods don’t last forever. Take a look at this chart:

History indicates that Blue Skies are ahead, as the popular song by Irving Berlin goes.