Why I like dynamic spreads

I know some of you will think I'm absolutely nuts. But, I actually like, really like, dynamic spreads. In fact, I love to see spreads widen significantly. Think I'm crazy, right?

I currently have two trading accounts - one with fixed and one with variable spreads. I like the variable account better. I've noticed that spreads widen, not when the market is moving or a big move is happening. But rather, when a big move is about to happen but the market isn't sure yet which way the move is going.

As an example, yesterday I noticed InterbankFx's spreads widen after the NFP announcement by 14+ pips on the EURUSD. But, this widening didn't happen when the first upward move started, or when it crossed below resistance on the big drop down. So for me, a channel breakout trader, the widening didn't impact my trades. However, the move did happen a little ways into the first upward move. This was a STRONG indication that the market was either preparing for a larger upper move or that it wasn't sure this upper move was the right way. The spread widening kept me out of the market until the market had decided a direction - down.

This is not the only example and I encourage anyone shying away from a variable spread account to re-think the decision. Many traders follow trend breakout systems like me and I've rarely seen a spread widening that impact the entry or exit (unless it was an emergency exit) under such a system.

So, the gist of what I'm saying is that widening spreads with an anonymous trading broker may not be all that bad of a thing. Just think of it as another datapoint guiding your trading decision.

Anyone with similar or different observations are welcome to respond.

I do have an observation....It seems that spreads widen so much before unknown direction market moves to prevent gamblers from profiting out of the broker or market maker pocket....

My observation about market makers and brokers, is that they can always run, but they can't hide Nothing is perfect....


Thanks,

Nader

I think the relation between the spread and the market emotions is quite obvious, however it can be useful only if you have a strategy which can or may want to use the signal. For my strategy it is useless, but I agree with you that the signal is worth considering!

Nader, I think you and I use the same broker MG. I have never expierenced any of this crap others are dealing with from MG have you?

Thanks SMJ

Stockwet, I like your theory and will be looking out for it in the future. Thanks for the insight.

I use to be one of those traders that thought trading with variable spreads was crazy. I also use to think that trading on daily charts was nuts too. But now I trade using the daily and I'm with a broker with variable spreads. The widing spreads never effect me, so I am good. As with everything in this game, there are advantages and disadvantages to everything ...

Happy Trading!

No, I haven't seen spreads widen with MG Financial ever, not in the past year at least....


Thanks,

Nader

Ya so true. One need to know the rules to be able to define the advantages and separate them from the disadvantages, and then create his edge....


Thanks,

Nader