Coming off one of the slowest European US sessions that I can recall, feeling like a summer Friday, it got me thinking about one of my trading tips. I call it Complacency Can Be a Trader’s Worst Enemy
What I mean by that is it is easy to give up on a day only to find yourself sitting on your hands when volatility suddenly picks up. I have seen it happen many times that I turn up my alertness meter and fight the tendency to become complacent when markets are dull.
There was a time in my forex trading career when every time I left for a break or lunch the market would stage a big move. It was uncanny. There were times a currency would be stuck in a range and I would use that time for a break. When I came back to my desk, guess what? There was a big move in my absence.
The most recent example is when the Bank of Japan surprised the market by intervening in USDJPY. The currency had just traded above 160 and most assumed there was covert intervention but did not expet an all out attack. This chart shows you what can happen when the market becomes complacent
I am not saying to stay glued to your screen but just be aware that it pays to be on alert. Markets have a tendency to move when traders give up on the day and get lulled into complacency.
Why?
- It may be a matter of liquidity thinning when traders back away and this creates an inability to absorb fresh flows.
- It may be that positions get trimmed during periods of sideways trading (i.e. congestion), making it harder here as well to absorb fresh buying or selling.
- It could also be that stops get closer to the market during these times, making them vulnerable and inviting targets.
Tip: Whatever the case, when the market turns quiet and complacent, it pays to raise your level of alertness and be on watch for a setup and a market move.
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