29 February 2016

Forex Trading in Turbulent, Volatile Markets

Currency pairs have their own times of turmoil, generally known as turmoil on the currency markets. But in times which tend to be labelled market turmoil, the focus is usually on the stock market.

In these kinds of market conditions, market turmoil tends to mean that stocks are falling. However this can also mean that there is some kind of turmoil in the currency markets as well. Usually the focus of this reflection of stock market turmoil are pairs such as Euro and Yen.

What may be seen at these times are indeed sharp falls and retracements, or as one one moves out to longer term times frames, volatility, that is up possibly elongated down candles followed by possibly elongated up candles.

What may tend to happen, is that the sharp sudden falls are followed by retracements back up, which are slower in action. The pair was pushed too low, so it recovers value, but there may be is a 'weight' in it, following the fall, making it more horizontal in its movements.

When those falls happen is unknown so they can be seen as a clear and present market danger, of an unusual nature. In any Forex market there can be sudden changes, for example on news. But in times of turmoil, there may be an expectation of an increased frequency of this kind of market action.

It might be thought that these changes in Forex are the result of changes in the equity market. However for this to be helpful, while it may be the case, requires knowing when the markets are going to drop.

Also I would myself note that there isn't usually a clear one to one correspondance between equity falls and changes in Euro or Yen. There may be an initial sudden move in Forex, that retraces while the market is still going down.

However, after market turmoil, what seemed like a steep fall, may, in fact, on a longer view turn out to be retracements.