Why the decrease in range? | Forex Factory

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Why the decrease in range?

  • #1
  • First Post: Nov 21, 2006 4:45pm Nov 21, 2006 4:45pm
Ok so I was just playing around in MT4 when I decided to see how volatility has dropped in the recent past (ie ATR has dropped).

I decided to do this by plotting a ATR(365) on each of the daily charts. Here are my results:

For most of these pairs, the first number is from 02/25/2005. I will note if otherwise.

EUR/USD 119 pips-->94 pips -25 pips -22%
USD/JPY 93 pips-->93 pips 0 pips
USD/CHF 135 pips-->98 pips -37 pips -28%
GBP/USD 165 pips-->136 pips -29 pips -18%
USD/CAD 109 pips-->97 pips -12 pips -11% 09/27/05
AUD/USD 89 pips-->58 pips -31 pips -35%

Anybody got an explanation for this??

andersenws
"Youth is the trustee of prosperity." - Benjamin Disraeli
  • #2
  • Nov 21, 2006 5:13pm Nov 21, 2006 5:13pm
no explanation but it really sucks
  • #3
  • Nov 21, 2006 5:15pm Nov 21, 2006 5:15pm
could it possibly be that more people are getting into forex trading, so the market as a whole is not as volatile, and then the range decreases?
  • #4
  • Nov 21, 2006 5:19pm Nov 21, 2006 5:19pm
Here is an indicator which will show the average ATR etc.

Regards

Alex
Attached File(s)
File Type: mq4 (T_S_R)-Daily_Range_Calculator_v1.0.mq4   3 KB | 339 downloads
  • #5
  • Nov 21, 2006 5:55pm Nov 21, 2006 5:55pm
Quoting andersenws
Ok so I was just playing around in MT4 when I decided to see how volatility has dropped in the recent past (ie ATR has dropped).

I decided to do this by plotting a ATR(365) on each of the daily charts. Here are my results:

You'd be getting much worse results if you computed the numbers by using a faster ATR. I like to set ATR at 21, giving me a better perspective of the short term volatility.

Right now, EURUSD would be below 70 pips per day against the 100 pips it used to average until a while ago.

That is more than 30% drop in volatility, which translates into more chop and reduced gains for traders.

The explanations behind this "stall" are various and can be found both in fundamentals and in TA.

EURUSD has been trading in a 500 pip range over the last 6 months and seems to be carefully held within that range for the time being.

I believe central banks are happy with this range for the moment. EU and US economies are doing ok, there is no reason to have a stronger dollar or stronger euro.

Furthermore, lets not forget there still are so many reserves denominated in US dollars all over the world, another reason why I hardly can see the greenback above 1.30.

On the contrary, if the EU economy slows down and the US economy continues to grow at a steady pace, I actually see the dollar getting stronger. Yet, I cant see this pair moving out of the 25-30 range in the immediate future, unless some crazy fundamentals drive it thru.
  • #6
  • Nov 21, 2006 6:22pm Nov 21, 2006 6:22pm
Have noticed this myself, likely my fault

2years when I was demo trading, I remember the market being fluid pretty much 24/7 and tradeable, where as these days you hit 2:30pm GMT and it's just over till the next day, unless there is big news.

But Adapt and Over Come!!!
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #7
  • Edited 9:56pm Nov 21, 2006 8:34pm | Edited 9:56pm
China and asian central banks are believed to be biggest players in the fx markets at the moment. China has close to a trillion dollars in their reserves and it seems as this has become their playground. While they may not start every move, but they sure seem to cap it from up top or below from everything I am hearing. It is now a game of trying to sniff out central bank offers and bids at the moment. Also, they are also way involved in the options market, which has similar influences. This is all I hear being on the institutional side for sometime now. They have seemed to take volatiltiy and squeezed it to nothing.

excerpted from the following thread:
http://www.moneytec.com/forums/f33/c...jpy-eur-21391/
  • #8
  • Nov 21, 2006 9:13pm Nov 21, 2006 9:13pm
Quoting ycomp
China and asian central banks are believed to be biggest players in the fx markets at the moment. China has close to a trillion dollars in their reserves and it seems as this has become their playground. While they may not start every move, but they sure seem to cap it from up top or below from everything I am hearing. It is now a game of trying to sniff out central bank offers and bids at the moment. Also, they are also way involved in the options market, which has similar influences. This is all I hear being on the institutional side for sometime now. They have seemed to take volatiltiy and squeezed it to nothing.

exercepted from the following thread:
http://www.moneytec.com/forums/f33/c...jpy-eur-21391/
Hi ycomp,

Excellent post.

When the elephants (CBs) are dancing quickly in the room, the mice cower in the corner and stay out of the way.

China has let the USD drift slowly down to show that it is being nice to the US govt....but soon it will want to help its manufacturers again by pushing the US dollar back up to Euro 1.25- 1.26.

As stated in an earlier post, China now effectively controls the US dollar

Quote
That is, China now has a Trillion US dollars in foreign exchange reserves. The US is hopelessly in debt to all major countries.
This means that China now effectively controls the level of the US dollar...and has done since early 2005

Technical analysis (Elliott Wave, etc) is built on the premise that markets move according to mass psychology of its participants.

There has now been a seismic shift in the USD Forex market...it is now quietly and surreptiously controlled by China. (for every 0.01 Euros increase above 1.2500, China's foreign exchange balance drops USD $8 Billion...so they will strongly protect that asset)

The USD based currencies will trade in a band (Euro 1.2500 -1.3000) for the foreseeable future...because
1. if it goes over 1.3000 China's manufacturers become less competitive and China has a superordinate goal of world dominance in manufacturing
2. if it goes under 1.2500, China risks a strong over-reaction from the US

(Please note: I only trade Euro/USD so if you trade yen, pound etc, then replace those figures for Euro)

Again, the key point here is that to trade this market successfully, the best strategy (IMO) is to trade the 1.2600 to 1.2900 range over the longer term.<!-- / message --><!-- sig -->
__________________
Jacko
<!-- / sig -->
  • #9
  • Nov 21, 2006 9:24pm Nov 21, 2006 9:24pm
cool jacko, once in a while I realize why I hang around this place... I end up reading an ultra-informative post like yours.

Now I finally understand the Chinese obession with ping-pong
  • #10
  • Nov 21, 2006 10:04pm Nov 21, 2006 10:04pm
There's a great article at Dailyfx.com on the low volatility environment in the FX market... check it out

http://www.dailyfx.com/story/special...055008797.html
  • #11
  • Edited 10:30pm Nov 21, 2006 10:18pm | Edited 10:30pm
Quoting ycomp
cool jacko, once in a while I realize why I hang around this place... I end up reading an ultra-informative post like yours.

Now I finally understand the Chinese obession with ping-pong
This is much more important than ping-pong.

You are witnessing the eclipse of the American economy as the worlds biggest economy by China and the economic lifeblood of international trade has firmly moved towards the ultra-competitive China and the smaller Asian economies.

In a very short period of time, America will wake up to the fact that its manufacturing industries (the basis of wealth in any country) have been gutted.

And what can it do?
1. It cannot theaten China militarily.
2. It cannot place tariffs etc because American doctrine is all about free trade.
3. And it can no longer influence the level of the US dollar.

The end result is that China, rather than the US, will progressively dominate and dictate world foreign trade.

Recent US Governments and the Federal Reserve have let us down badly.
  • #12
  • Nov 21, 2006 10:28pm Nov 21, 2006 10:28pm
Quoting jacko
This is much more important than ping-pong.

You are witnessing the eclipse of the American economy as the worlds biggest economy by China and the economic lifeblood of international trade has firmly moved towards the ultra-competitive China and the smaller Asian economies.

In a very short period of time, America will wake up to the fact that its manufacturing industries (the basis of wealth in any country) have been gutted.

And what can it do?
1. It cannot theaten China militarily.
2. It cannot place tariffs etc because American doctrine is all about free trade.
3. And it can no longer influence the level of the US dollar.

The end result is that China, rather than the US, will progressively dominate and dictate world foreign trade.
Hope you are right, cause I just shorted the hell out of the EURUSD
  • #13
  • Edited 11:34pm Nov 21, 2006 11:20pm | Edited 11:34pm
Quoting jacko
This is much more important than ping-pong.
I was referring to China bouncing the USD from one side of the range to the other

Quoting jacko
You are witnessing the eclipse of the American economy as the worlds biggest economy by China and the economic lifeblood of international trade has firmly moved towards the ultra-competitive China and the smaller Asian economies.

In a very short period of time, America will wake up to the fact that its manufacturing industries (the basis of wealth in any country) have been gutted.
Hi Jacko,

I typed something but it was a bit long and I didn't want to pollute this thread with things not directly related to volatility. So I moved it to a new thread:

http://www.forexfactory.com/forexfor...d.php?p=143952
  • #14
  • Nov 22, 2006 8:06am Nov 22, 2006 8:06am
Quoting wwwin
Hope you are right, cause I just shorted the hell out of the EURUSD
I don't understand this post.

Are you betting on a strong US dollar ??
  • #15
  • Nov 22, 2006 5:19pm Nov 22, 2006 5:19pm
Quoting PipCrawler
There's a great article at Dailyfx.com on the low volatility environment in the FX market... check it out

http://www.dailyfx.com/story/special...055008797.html
Good article! Thanx
Bundy's status today: "Waiting..."
  • #16
  • Nov 22, 2006 9:05pm Nov 22, 2006 9:05pm
I noticed the decrease in range also. The more I study the market the more it looks like a frequency. I am sure this is not a new concept. Like Elliot wave although I have not studied Elliot too closely. If I were trying to optimize an EA, though, range would be the first place I would start. One thing that is hard to understand is why an EA would perform so well over a 6 month period, but be useless the 6 months prior to that. In my opinion range has a lot to do with that. The algorithm changes and the stops and take profits aren't in balance anymore. Maybe this is all common knowledge to the pros.
"Its not where your at, but where your coming from"
  • #17
  • Nov 22, 2006 9:17pm Nov 22, 2006 9:17pm
Quoting andersenws
Ok so I was just playing around in MT4 when I decided to see how volatility has dropped in the recent past (ie ATR has dropped).

I decided to do this by plotting a ATR(365) on each of the daily charts. Here are my results:

For most of these pairs, the first number is from 02/25/2005. I will note if otherwise.

EUR/USD 119 pips-->94 pips -25 pips -22%
USD/JPY 93 pips-->93 pips 0 pips
USD/CHF 135 pips-->98 pips -37 pips -28%
GBP/USD 165 pips-->136 pips -29 pips -18%
USD/CAD 109 pips-->97 pips -12 pips -11% 09/27/05
AUD/USD 89 pips-->58 pips -31 pips -35%

Anybody got an explanation for this??

andersenws

Just wondering whether the reduced daily ranges are in response to the recent phenomena of the significantly reduced spreads that we all enjoy. In order for the game to stay the same the ratio of daily ranges to spreads needs to remain constant - hence the mkts reaction is to reduce the daily ranges ?

I'd be very interested to hear peoples thoughts on this, because if true it potentially effects the way we should all be thinking about backtesting.
  • #18
  • Nov 26, 2006 11:50am Nov 26, 2006 11:50am
Quoting richp
Just wondering whether the reduced daily ranges are in response to the recent phenomena of the significantly reduced spreads that we all enjoy. In order for the game to stay the same the ratio of daily ranges to spreads needs to remain constant - hence the mkts reaction is to reduce the daily ranges ?
I think it would be naive to think that the market is changing in a reaction to lower spreads. I think it would be the spreads changing in a reaction to the market, specifically, the decreased volitility of the market. Or then again maybe nobody knows and we're all just guessing. Ya, I think that's it.
  • #19
  • Nov 27, 2006 7:28am Nov 27, 2006 7:28am
I've got a range based system, going to say not been able to write a expert clever enough to use it profitably but...


check out on a 5min chart. GBP

2hour range - Envelope 24SMA Dev 0.2% avoid news times and it's 90% accurate.

12 Hour range - Envelope 144SMA Dev 0.5% Failed last friday only time I've seen it fails in a year, rarely moves outta this range regardless of circumstances.


Works on the EURUSD to use .4% not .5% though.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #20
  • Nov 27, 2006 9:55am Nov 27, 2006 9:55am
Hi Turveyd,

what kind of stops and TPs do you use for this?

Quoting Turveyd
I've got a range based system, going to say not been able to write a expert clever enough to use it profitably but...


check out on a 5min chart. GBP

2hour range - Envelope 24SMA Dev 0.2% avoid news times and it's 90% accurate.

12 Hour range - Envelope 144SMA Dev 0.5% Failed last friday only time I've seen it fails in a year, rarely moves outta this range regardless of circumstances.


Works on the EURUSD to use .4% not .5% though.
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