3/8 – Preparation: A glance at the daily timeframes

Observations from looking at the higher timeframes:

Decreased Volatility

  • A quick two-minute glance at my Mt4-based volatility platform I can see that volatility has decreased across all fx pairs, equity indices and key commodities, with Gold being the sole exception.
  • This means that the daily ATR(14) is lower than its averaging rating over the past month, quarter and year.
  • This is to be expected as the financial markets tend to be quieter during the summer months as many of the big traders go on holiday and thus volatility is zapped from the markets.
  • Immediately this raises a warning flag:  For daytraders and for swing traders – there’s less movement so directional trading strategies are less likely to work – particularly if they revolve around breakouts.
  • I would think that reversal-based setups and/or betting on consoldations are more likely to be profitable.
  • The transaction costs (spread+commission) as percentage of daily volatility increase – the odds stacked against the independent trader have been increased.

Distinct Strength & Weakness Camps ….

In the currency markets there are currently three distinct camps on the strength/weakness scale – using the daily and weekly timeframe – USD and GBP are strong, NZD/CAD/AUD are weak, EUR/CHF/JPY are in the middle.

Added on 5/8: -> Central Bank Policy Divergence? Fed and BOE are looking when to raise rates, RBNZ is cutting rates etc

Leading to several trending FX pairs!

Thus there are currently several instruments that are trending nicely on the daily chart. These are the NZD camp (EURNZD, GBPNZD and NZDUSD), the CAD camp (EURCAD, GBPCAD and USDCAD) and the AUD camp (EURAUD, GBPAUD and AUDUSD).  The daily charts of these instruments make trading these instruments more attractive (all other variables considered equal).

Consolidation elsewhere

In contrast to the trending instruments, my “key” instruments (the ones I normally trade) are now all consolidating on the daily timeframe.  USDJPY, DAX, EURUSD and AUDUSD are still trending on the weekly timeframe but it looks as if they are taking a breather.  Thus it seems that all the major instruments have gone into a consolidation phase – which again makes sense given that it is July and August.  The same applies to the main European and US equity indices across the board.

What implications do these observations have for me as a daytrader?

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3 Responses to 3/8 – Preparation: A glance at the daily timeframes

  1. FXTraderPaul says:

    Id agree with you George – breakouts in August tend not to have the follow through required. Just be wary when trading them – things may move on light volume/momentum – but run out of steam quickly.

    Liked by 1 person

  2. Yvonne says:

    Hi george – in regard to your comment “my Mt4-based volatility platform” are you referring to a specific MT4 indicator for working out the average using the ATR(14) on the daily chart or do you just do it by eye? Thanks

    Like

    • Good question! This is a custom tool that measures volatility individually for a variety of instruments. A couple of us got together to agree what we needed in terms of volatility and then a friend of ours programmed it.

      Like

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