The markets seem to be a bit unsettled at the moment. Direction changes are occurring very frequently and with surprising speed due to news announcements. Often, what was a great, smooth and very tradeable trend on the higher time frames tends to become a wild spike which then throws the overall trend or trade out of whack.
Have a look at EURUSD on the 4 hour chart (below). Notice the large spike up from a news release. This is a move of over 400 pips in a little over 8 hours, this is a very big move and regardless of what caused it, it does result in me being a little more cautious and aware of the volatile trading conditions so far this year.
Due to this increased volatility I have had to make some changes to my trading plan, which is to trade the lower time frames. This allows me (in theory) to be able to get in and out of a trade fairly quickly and to avoid the major news events which in turn reduces my overall risk of being caught out by a market spike. It has been a bit of a step for me because I do love to swing trade off the higher time frames and it has done me very well over the years.
My current plan is to trade the mid to lower timeframes like the 4 hour and lower. This doesn’t mean my strategies will change however but rather my approach to them. If I was to trade off say a 4 hour chart where I may have in the past looked for a first target of 1:1 then a bigger move I may now just look to take profit at 1:1 or say 1.5:1.
Now please understand that this change in how I am trading is based on me having kept very clear and accurate trading records over the years and this year is no different. The analysis of past trading and market conditions allows me to make some slight changes to how I trade based on empirical evidence of what is occurring in the markets right now. I would never make a quick change based on a one or two trades. I always aim to remain in step with the markets by adjusting to the current conditions and I ensure that I have trading strategies that allows this to be a quick and easy transition.
For the time being I am allowing the increased volatility to influence my trading plan, as and when normal play resumes I will then make up my mind, based on the facts, and adjust accordingly.