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Forex Market State Are We Off Having A Snooze

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?

Please leave a comment below and click the like/share buttons

About Rachel Hunter TraderRachAbout 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.

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Categories: Market State

6 Responses so far.


  1. Sarah Potter says:

    I like the matrix you presented. It’s important to have different trading strategies for various reactions on the markets. We need to be flexible and adapt our trading strategies to the changing markets.

    • Rachel says:

      Hi Sarah

      Thanks for the comment.

      I like to have strategies that alter their trade frequency so they don’t over trade in unsuitable market conditions. However I don’t adapt a great strategy since the markets are continually changing. My experience has shown me that if you continuously adapt to current market conditions you are always a step behind.

      What are your thoughts?

      Cheers Rach

  2. A trading system doesn’t work everytime, indeed.
    For my part, I don’t change my entry strategy according to the market condidtions. However, I change the way to choose my targets according to the market conditions. For example, with a ranging market I choose top/bottom of the range as unique target but with a trending market I choose supports/resistances as two or three targets and also I use trailing stop at the end of the operation (but never with ranging market).

    Nice article, Rachel !

    • Andrew says:

      Great post Rach and I agree with Sarah above. Multiple strategies is my answer as well. I find you cannot just switch a strategy off and on, a trend following strategy should cut losses in ranging markets whilst a range based strategy will cut losses in trends. Providing the profitable trades outweigh the losses you’re cutting on the losing systems you’ll finish ahead… but not always of course. Running two strategies side by side targeting the different market conditions makes sense..or running a particular strategy for say trending on a market with a tendency to trend and running a range based strategy on a market that tends to range trade more often than trend makes even more sence.

      • Rachel says:

        A sensible comment thanks Andrew.

        What you describe doesn’t seem highly correlated so it shouldn’t significantly magnify overall portfolio losses at the same time.

        Cheers Rach

    • Rachel says:

      Hi Alain

      Thank you for sharing your useful comment.

      You have two strategies too. One for trending and one for ranging markets and you choose when to apply them.

      All the best for a great 2013 trading year.

      Cheers Rach

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