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US Dollar Offers Breakout Trading as Volatility Surges

David Rodriguez

DailyFX PLUS System Trading Signals Forex market conditions remain volatile, and volatility-friendly breakout trading strategies stand to do well amidst sharp currency moves. The Dow Jones FXCM Dollar Index (ticker: USDOLLAR) trades at its highest levels since September, 2010, and the safe-haven US currency stands to strengthen further if volatility continues.


The Dollar may do especially well against “high-Beta” currencies such as the Australian Dollar and Canadian Dollar, which have both broken below key support levels versus their US namesake. Our retail FX sentiment indicator shows that crowds have bought aggressively into AUDUSD weakness, and our sentiment-based trading strategies have accordingly gone long the US Dollar against the Commodity Bloc.


Our high-volatility system has done well trading the major breakouts, and current market conditions suggest said strategy could continue its recent trend of outperformance.


One especially bright spot for said system has been the Japanese Yen and particularly the Euro/JPY and other cross rates. With the recent reversal in the EURJPY, however, we are admittedly left to question whether the recent JPY bounce could be the start of a larger correction. If it is indeed the start of a larger breakdown in JPY cross rates, the one-way breakout trade that has served us so well may soon prove more difficult.


DailyFX Forex Volatility Indices


forex_trading_us_dollar_and_breakouts_body_Picture_1.png, US Dollar Offers Breakout Trading as Volatility Surges

Our FX Options-based DailyFX Volatility Indices continue to hit fresh peaks, and indeed it seems that professional traders predict strong currency moves will continue into the weeks and months ahead. We use these indicators to help predict which trading strategies stand to do well based on past market performance and experience.


View the table below to see our strategy preferences broken down by currency pair.


DailyFX Individual Currency Pair Conditions and Trading Strategy Bias


forex_trading_us_dollar_and_breakouts_body_Picture_2.png, US Dollar Offers Breakout Trading as Volatility Surges

Automate our high-volatility sentiment trading Breakout2 strategy: article and webinar recording.

forex_trading_us_dollar_and_breakouts_body_1a.png, US Dollar Offers Breakout Trading as Volatility Surges

Automate our sentiment-based Momentum2 system: article, webinar recording

Trade with the purely SSI-based Momentum1 strategy: article, webinar recording


--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com


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Definitions

Volatility Percentile – The higher the number, the more likely we are to see strong movements in price. This number tells us where current implied volatility levels stand in relation to the past 90 days of trading. We have found that implied volatilities tend to remain very high or very low for extended periods of time. As such, it is helpful to know where the current implied volatility level stands in relation to its medium-term range.

Trend – This indicator measures trend intensity by telling us where price stands in relation to its 90 trading-day range. A very low number tells us that price is currently at or near 90-day lows, while a higher number tells us that we are near the highs. A value at or near 50 percent tells us that we are at the middle of the currency pair’s 90-day range.

Range High – 90-day closing high.

Range Low – 90-day closing low.

Last – Current market price.

Bias – Based on the above criteria, we assign the more likely profitable strategy for any given currency pair. A highly volatile currency pair (Volatility Percentile very high) suggests that we should look to use Breakout strategies. More moderate volatility levels and strong Trend values make Momentum trades more attractive, while the lowest Vol Percentile and Trend indicator figures make Range Trading the more attractive strategy.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES IS MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION.

OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice. The FXCM group will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance contained in the trading signals, or in any accompanying chart analyses.



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