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The market in recent months has created exceptionally difficult conditions to trade. Low volatility and obscure price action has reduced the volatility available for traders to capitalise on. These conditions have affected FOREX, Equity, and Index trading. It has been specifically difficult for momentum and trend following traders as a certain level of volatility is needed for trader to return profitable trades.
How to spot low volatility
The Average True range or ATR range can be an important indicator in determining the level of volatility in a market or asset. It measures the average trading range of a particular asset’s price over a period. It can exceptionally be helpful in determining how volatile the asset is at a certain point in time, or how volatile an asset is compared to another one. For instance, looking at the ATR for the Dow Jones, it has been getting progressively lower and is at its lowest level since August indicating a reduction in volatility.
The Market Volatility Index or the VIX measures volatility across the S&P 500 is also an important indicator to not just gauge market volatility, but also general market sentiment and emotion. When fear and greed are prominent in the market volatility tends to increase and when they dissipate, they tend to decrease. As the chart shows, volatility has been reducing to levels not seen since the rally in August 2022. The characteristics of the chart are also interesting as the VIX acts much more in waves then other indices do.
How can you optimise your trading during periods of low volatility?
Tips for trading in low volatility markets
Trading can be difficult during periods of low volatility. However, this does not mean traders should not trade. Rather, traders should be aware of potential obstacles and difficulties that may arise and the strategies that can help work though these difficulties.
Disclaimer: Articles are from GO Markets analysts and contributors and are based on their independent analysis or personal experiences. Views, opinions or trading styles expressed are their own, and should not be taken as either representative of or shared by GO Markets. Advice, if any, is of a ‘general’ nature and not based on your personal objectives, financial situation or needs. Consider how appropriate the advice, if any, is to your objectives, financial situation and needs, before acting on the advice. If the advice relates to acquiring a particular financial product, you should obtain and consider the Product Disclosure Statement (PDS) and Financial Services Guide (FSG) for that product before making any decisions.