We need some action! What’s going on? Do we all suddenly agree about the relative prices of currencies? Am I missing a group hug?
No way, but things have been pretty quiet lately. Have you noticed? Do you agree?
What this does highlight is the need to consider the market conditions when you’re trading. What are the market conditions I’m talking about?
- Market conditions can be volatile, with currencies moving explosively one way or the other.
- On the other hand they can be quiet, making small moves to some place or nowhere at all.
- As well as being volatile or quiet the markets can be trending where they’ve got somewhere to go; a destination in mind.
- Or otherwise ranging where they hit their heads somewhere and then come back and forth like a yo-yo.
We can present this like a matrix here:
Usually each system is more suited to particular market states. It works well in some states but typically not in them all.
Let’s have a think:
- Do you know what market state your system(s) works well in?
- Is there a market type you’d like to avoid where it can get a bit ugly?
- What kind of market state do you think we’re in now?
It’s important to consider the market conditions so you can make sense of your system performance at various times. Make sure to fully understand the logic of your trading system so that it makes sense to you. There will be times when you will be tested and without faith and understanding you will falter or lose confidence in some way.
We never really know we’re in certain market conditions until they’ve been around a while. They don’t announce a warning on a loudspeaker so we know they’ve arrived. It would be nice if they did. It’s good not to over-react because once you find out there’s a change to one state there may be another one just around the corner.
What’s good is to have part of your system that controls how aggressively you trade at certain times, in certain conditions, so you respond to the changing markets as criteria are met. This should be rule based and systematic so that we’re not relying on our own judgement that’s influenced by fear, greed or any other biases.
Do you have rules that respond to changing market conditions’ giving you more or less trades at times?
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About the Author: I’m Rachel Hunter, TraderRach, a Forex Trader who helps traders achieve the life they love with forex. Be strategic and design your trading business for sustainable success and have fun! That’s my mission. Join many traders’ gaining the edge with “10 Powerful Lessons for Forex Trading Success” plus other goodies. Years of precious learning specially packaged up for you. My background before trading is as a Chartered Accountant and Chief Financial Officer. I know what it takes to make a trading business rock on. It would give me great pleasure to make a difference to your success.