Forex Trading In Choppy Markets

Many traders feel that the some of the biggest obstacles in trading that we face have to do with over trading and attempting to trade a choppy market. With almost 20 years experience trading markets, and over 5 years experience as a Forex coach, I have found some traders who place 4-6 trades a day, in currency markets and expect to gain 100+ pip moves or more on every trade. Most of those traders expectations are just out of tune with Forex reality, liquidity and volatility of the market.

You will find the market will trend nicely at times, therefore you should seek opportunities on these  trends whenever you can. The reality is the Forex markets will eventually display choppy or rangy market conditions, and its important to change your style to evolve or you may end up with large trading losses.

How Do I trade Forex In Choppy Markets?

If you are trading a choppy or very range based market, what what is the best trading strategy?

Here are a few key points I implement when necessary:

1. Trading choppy Forex markets, takes experience and know how. Using techniques such as stop hunting, options, one day sentiment/macro shifts, and watching for false breakouts.

2. If you are married to trend trading then its simple...find another market that is trending. Finding another markets in Forex may be as easy as just changing your pair to a commodity pair. I often will jump to stocks or Index futures when Forex is dead.. If you strictly trade currencies, then you may be preventing a vast array of opportunities in other markets. There are often times when all the currency pairs are choppy.

3. If you are not ready to change your strategy then its very simple...STAY OUT of the market and wait until the chances of a breakout are higher, or step in after the breakout has taken place..

4. Learn some option spread strategies to make money during expected low volatility environments. These techniques can be tricky, however once you have a strategy you may find them very easy to follow.

For the retail Forex trader, there are less option strategies in the forex markets. Recently there has been lots of new Forex option brokers popping up, however I have not tried any of them. These Brokers are not traded on an exchange and you will find the cost to play these options is a lot more than other options.

Large Market Participants Use Exotic Forex Options

Big banks and hedge funds in the forex market like to use exotic forex options for this. Typically a Double No Touch Option.

A good example of this was a few weeks ago when we saw the EUR/USD run. There was  a Double No Touch option in the EUR/USD which was taken out at 1.1700. Some market participants wanted to play the volatility in EUR/USD by buying some  No Touch Options with barrier prices at 1.1200 and 1.1600. If EUR/USD did not touch both 1.1200 and 1.1700 by the time the option expiration came, then the players make their payout. If it did not,then they lose their option premium they payed.

The end result was interesting, the option hunters came and the stops above it were tripped and knocked out the barrier. In the end there was a very nice shorting opportunity.

Last week we experienced some choppy markets, my answer was to hedge some Forex pairs and it paid off. Hedging allowed me to participate in the market changes and we gained 1.6% for the week.

One pair in particular that my strategy worked well on was the USD/JPY. A series of buys and sells at key levels helped me to gain pips on both sides while playing key supports and resistance levels.

Here is the EUR/USD. We traded both sides of this pair last week.

Here is the USD/JPY, we traded last week. The range trades were more obvious with this pair.