One of the better ways to get an edge trading low-volatility situations is to combine them with the trend.
For example, on May 21 and May 24 there was a 6/100 volatility reading under 50% in the bond market. The trend for bonds had been down for the past six weeks as measured by prices trading under their 50-day moving average. By putting the pieces together, you would look for a larger-than-normal move to occur to the downside. As you can see from Figure 1, bonds dropped more than two full points over the next week.
|Figure 1. June ’99 T-bond futures (USM9), daily.|
By combining the overall trend with low-volatility situations, you gain an edge over the many traders who come into the markets each day simply shooting from the hip.