4 Alternative trading strategies in a low volatility environment

Some say volatility is a forex trader’s best friend, but how do you profit on a low volatility trading day or when there are no major catalysts?

Here are some tips on how to profit even when the markets seem to be in snooze mode:

1. Look at currency correlations for possible trading opportunities

A lack of central bank announcements or headline economic reports doesn’t necessarily mean a week of low-volatility trading for major currencies. One of the advantages of forex trading is that it is not only dependent on central banks and economic data for certain stocks.

All transactions involving money can affect the supply and demand of a currency. Movements in government bonds, stocks and even large mergers and acquisitions (M&A) flows can also influence the price of major currencies.

Of course, you can’t just buy a dollar because the weather in your brother’s cousin’s neighborhood is remarkably bad. You also need to make sure that other traders are seeing the same correlations that you are seeing!

2. Try to trade transport

As stated in the School of Pipsology, transport trades simply take advantage of interest rate differentials.

If prices generally stay the same, you can make money by buying currencies with higher interest rates versus those with lower rates. Currency crosses and exotic pairs usually present the greatest carry trade opportunities.

Just make sure you pay attention to your broker’s spreads as they can be punishing when there isn’t enough volatility to go around.

3. Find strategies for a low volatility environment

Although trend trading and similar volatility-based strategies are the favorites of forex traders, you can also take advantage of low-volatility approaches to take home some pips.

You may want to try strategies that focus on ranges, larger position sizes, tighter stops, oscillators, or even trading on smaller time frames. Feel free to get creative with your piling strategies!

4. Beware of new game changers

Just because there’s no catalyst today doesn’t mean there won’t be any market movement reports tomorrow. Look at economic reports collectively and see if there are any changes that could alter a central bank’s policy bias. Listen to central bankers’ speeches for any hints of policy changes in the near future.

Scan your news feeds and keep up with the Forex Vine for any issues or information that could look like the next market move for major currencies.

Last but not least, you can pay attention to the general sense of risk for possible trading opportunities. Just make sure you remain flexible enough to withstand any additional volatility!

Consistently profitable traders are not one-trick ponies. They learn to adapt to different trading environments and somehow make pips even when there is limited trading volatility.

This does not mean that you should force trades even when there are no big moves to take advantage of. This just means that if you want to be consistently profitable, then you need to start developing and practicing strategies that can keep you in the game on low volatility trading days.