Making money in a trending or high-volatility trading environment is easier for many forex traders. After all, strong trends and volatile currency pairs usually offer the best opportunities using the classic buy-low-then-sell-high strategies.
Being consistently profitable when there’s not much going on, however, is a bit trickier. You have to adjust your volatility expectations (and therefore your position sizing) and price reactions of your go-to currency pairs are suddenly less predictable. Also, applying your tried-and-tested trending strategies usually results to losses that could lead to even more problems with your trading confidence and execution.
Does this mean that you should avoid trading on low-volatility days? Maybe finish your Netflix series or pursue new hobbies like crocheting or competitive mooing until the markets get a little more interesting?
Becoming consistently profitable means making profits even when market conditions aren’t ideal for your existing strategies. Luckily, trading quiet markets can also teach you three lessons that would make you a better trader:
This one’s a no-brainer. Looking for trade opportunities when prices aren’t moving as much as you’re used to usually pushes traders into overtrading, or taking trades even when they’re not adequately supported by fundamental and technical analyses or don’t have favorable odds.
Eventually though, you’ll learn that being profitable means being more selective in the setups that you take. You’ll learn that it’s better to wait for one good trade rather than take your chances at half-baked trade ideas. The discipline you acquire will help guard you against overtrading and will prove useful in all types of trading environment.
Just like a chef changes his menu according to the produce in season, consistently profitable traders also learn to switch up their trading strategies according to the current market environment.
There’s nothing wrong with specializing on trend-catching strategies, of course. But if you want to be profitable all year round, then you must also prepare to widen your skill set beyond the usual “buy low, sell high” program. Read up on countertrend, breakout, and range strategies if you’re just getting started!
The biggest and most predictable movers in a trending environment may not be the best pairs to trade when volatility dies down. Trading in a quiet market forces you to identify new opportunities that you can take advantage of.
Do other currency pairs move more predictably than your go-to assets? Is it better to trade during another trading session? Should you focus on another indicator when identifying low-volatility trade setups? These are some of the questions that you’ll be able to answer with enough practice trading in non-trending conditions.
Remember that how you trade a setup is just as important as the setup you trade. You don’t need to wait for a perfect trading environment as long as you’ve mastered the art and science of spotting setups with good reward-to-risk ratios and you’ve learned to execute your trades according to plan.