Currencies all over the world have been more volatile this week than in any week in the last year, or two years, or three years. A 900 pip daily candle this week was a good sign that people were just simply freaking out.
If you stop and think for a moment, and I know you're the "stop and think" sort of person, you'll remember that right now the interest rate picture around the world looks like this:
Bank of Canada 4.50%
Bank of England 5.75%
European Central Bank 4%
Federal Reserve 5.25%
Swiss National Bank 2.5%
Reserve Bank of Australia 6.5%
Reserve Bank of New Zealand 8.25%
Now compare ANY of those numbers to:
Bank of Japan 0.5%
What's happening right now is that people are selling off high interest currencies and buying the world's lowest interest rate currency. Panic can only take this down so far; that's why this morning we saw the GBP/JPY rise 800 pips off its lows in just a matter of 6 hours. That's why we saw the EUR/JPY jump up 300 pips this morning in 3 hours.
At times like this there are pie in the sky traders who start believing that we'll see this sort of activity forever now, and a month from now they'll still be taking trades and hoping for 900 pip moves. Please keep in mind that this sort of movement is unusual, it won't last forever, and you shouldn't be altering your rules now to try to get rich quick.
In the near term, can expect more volatile movement up and down. We can expect a lot of uncertainty. We can also expect that we'll see disruption not just in the currency markets, but in all markets. So what do we do?
First of all, we never risk more than a small fraction of our account on a single trade. If you risk 1% or less per trade, and you stay true to your stops, none of this stuff matters. If, on the other hand, you start risking a lot, thinking that you are going to make a fortune in the short term, you are going to go broke. You will be, in other words, gambling.
Second, we're going to keep trading our system. Our rules don't change. Maybe the volatility increases. But soon enough people will get in touch with their senses, things will calm down, and we'll still be trading our rules, still be risking 1% or less per trade, and still happy.
