How to Trade A Quiet, Range-Bound Market
As the saying goes in the trading industry, if you have not made anything
happen by mid-August and mid-December, simply throw in the towell and wait till
the new month begins. With trading desks thin, and many still unclear as
to the direction of Fed policy, we are at this juncture once again.Â
Nonetheless, if you wish to trade, there are some opportunities if you are
patient.
I have placed a total of four trades in FX for the month of August (see
yesterday’s column) and am up a modest 200 pips. In this market, I am real
happy with that. While I have no intention of seeking out any new macro
based trades at present, there may be trades that set up on a 60-minute chart
periodically. For now, my focus is pretty much on only two currencies, the
New Zealand dollar and the Japanese Yen. The NZD simply because it has a
nice rate differential and appeals to those seeking risk aversion. The JPY
because it is closely ties to the level of oil prices. Even though these
two themes are macro based, the present market environment simply will not allow
for longer-term views given that every bit of economic data released results in
big whipsaws on the charts.
With that said, keep these simple rules in mind when seeking out entry and
exit points:
-Â Always trade in the direction of the trend, as defined by the
20-period ema
-Â Look to buy pull-backs/sell rallies with confirmation from the
stochastics
-Â Most importantly, define your exit and of course stop loss
The market at present is not one where you can “milk” trades. Each key
technical level is respected, you must respect it too. Here is a good
example of a trade that followed these rules.
-Â The trend is up on the NZD
-Â The pull-back trend channel was broken
-Â Oversold stochastics (X) confirm buy point
-Â Support serves as a stop loss
-Â Exit coincides with an overbought stochastic (Y)
While this trade may appear “too perfect”, it is how trades can and are done
when you apply a logical set of rules. For me, I know that the NZD is in
play based on the macro analysis, and combined with my technical understanding,
it makes for a powerful overlay.
As always, feel free to send me your comments and questions.
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