In times of high market volatility an adjustment to your forex trading strategies may be called for. If market impetus is influenced more by news conferences and political releases than by fundamental and technical indicators and fundamental economic principles failing to adjust results in less profits than optimal and being in a bad position on a pairing needlessly.
Indicators take into account historic tendencies and analysis to predict movement. If the movement is predicated by impulse, reactionary buying or selling, or perception instead of fact the valuations of currencies may move contrary to what might be expected.
When a market becomes reactionary making a prediction requires a secondary analysis. All traders look at the indicators to determine what direction the currencies should be moving in relation to each other. When the currencies do not respond as predicted a second look must be given as two possibilities exist.
1. You are putting too much emphasis on the wrong indicators. An example might be an economy with slow or negative growth. While an indicator of reduced value it may have less meaning if slow growth or recession is very wide spread or expected to be.
2. The value is not be dictated by indicators so much as current events and breaking news. The news of the impending rating cut of the GBP may have more effect on the value of the GBP as any real indicators of economy.
In the first situation time spent correcting the indicators you are using may correct the situation. This is particularly true in a relatively stable ongoing market where your strategy is simply less effective now than it was a few weeks ago. If regardless of how you manipulate the indicators even in retrospect the results continue to be unpredictable you need to look in another direction.
Forex markets are sometimes being pushed excessively by large capital investments by people fleeing a down stock market. Buying and selling is happening based on news coverage of economies as opposed to technical indicators. In a volatile market such as this it must be recognized that a strategy historically proven for you may be ineffective.
Most rule based and automated software driven trade strategies are difficult to adjust to this. With the economic instability predicted in the US due to political spending cuts and manoeuvrings the USD is expected to be very volatile in the next weeks. A rule based formula looking at current GDP and CPI is of little value if the currency is being valued based on expected turmoil rather actual events.
In such instances where reality of indicators is at odds with currency values moving to a price action strategy may yield a better result. Taking advantage of unpredictable swings based on market mood allows for profits to be derived regardless or trending.
Short holding times accepting small profit margins as the natural peaks and valleys occur in a trading day regardless of indicators is a sound strategy in such times. Using your automated settings only to buy or sell within multiple narrow margins allows more small profits in a day while insulating against a large loss. It will also help ensure discipline to preserve your capital on a poor day.