Normalised Pricing versus Pricing Extremes in Forex

Traders have differing opinions and strategies when it comes to normal and extreme pricing conditions in the forex market. There are pros and cons for each, so this article takes you on a journey to see what might suit your trading style.

What Tools Are Used to Determine Forex Price Conditions

The use of Bollinger bands as a form of visual standard deviation has long been used amongst currency traders. Moving averages are also a helpful tool. Both use statistical concepts to derive information from price history.

Forex in Normalised Conditions

When currency pairs are considered within a normal range, this might be 0.6 to 1.2 standard deviation, traders may look to operate within this range to seek normalised trading conditions and aiming for a more predictably consistent result.

What is required to trade in Normalised Conditions

Markets often operate within normal conditions. Think about times when there isn’t big news announcements, crazy world events specific to that market or massive buying and selling for whatever reason. To trade normal conditions, looking for normalised movements and pricing (so not outside of Bollinger bands or far from the moving average, or even overbought or oversold) it takes a system that will bring plenty of trades with an edge of the market.

In a normal condition, you might expect more trade opportunities to present itself, you might expect to lose more trades but also have a higher trade count and plenty of data to assess and tweak your strategy. If the market is outside of these normalised parameters, there is no trading to be conducted, as exciting as it may appear.

Forex in Extreme Conditions

On the other hand, there’s the thrill seekers and those searching for out of balance markets to jump in and play their part in rebalancing the pricing of the currency pair. Much like climbing mount Everest, these traders push the limits and look for trades in the most extreme of market conditions.

While traders looking for the volatile and extreme pricing conditions may have big moves waiting for them on the other side, waiting out these conditions can take time, so patience is essential.

What is required for Extreme Trading Conditions

Traders need patience and also the tools to identify when the market is out of normal conditions. This can often be done with indicators such as a Bollinger band, alerts and more. Once the market hits an extreme condition, the tough part is when to get in, as sometimes the extreme now isn’t as extreme as it will be in a day or two. Once the market hits the extreme point and the trader is ready, they must now plan their expedition to trade the market effectively, these moments only happen once in a while on each market.

Note also though, that the market does launch out of bounds frequently, into extreme territory but unfortunately without the alerts set up (FXT Navigator can actually help with the Screener Function), many people don’t even realise the market went out of bounds until its too late. Often these moves can be quick, so only those ready for the challenge are set up to benefit from the price rebalance.

Media and Trading

Media has historically been positioned to promote propaganda against the actual future direction of the market. When things are bad, or improving from a bad condition, media promotes this concept while smart money is buying up the big stock market sale. When things are good and becoming overbought and overpriced, the media often pushes more money into the market with positive news, when the big players are often reducing exposure to wait for better valued opportunities.

Why the Media Can’t Help in Market Extremes

Media often won’t get time to show these big events in trading (other than world disasters or planned announcements) as they can sometimes happen before they can broadcast the segment. This is why extreme market traders need to stay on top of the movements themselves to capitalise on the opportunities that are hidden in the vast market that is Forex.

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