Currency Capita...'s  Instablog

Last week, I got to go to a New York Yankees game and sit in the box behind home plate. As many of you know, I'm not much of a "sports guy," but I still enjoyed watching the game from the box.

I saw some awesome plays. Some of them were from guys knocking it out of the park, while others were hitting singles.

The game could technically be won by using either approach. However, I'd say more games are won by hitting singles, even though the home runs are more exciting.

And so it is with trading. Some people love the "knock'em out of the park" trades. But in attempting to go for those, you carry more risk.

A way to make more consistent gains is to take a "low volatility" approach and "hit singles." They aren't as impressive, but they are steadier and less risky.

So how do we go about finding trades like this? Well, I'm going to lay out a strategy for you to sniff out these types of trades…

You see, different pairs have different levels of volatility. For instance, right now, GBP/NZD trades about 198 pips per day. On the other hand, USD/CHF trades around 95 pips per day (about half as much as GBP/NZD).

So, if you're trading GBP/NZD and the trade goes against you…it could go very against you. But if you're trading USD/CHF and the trade goes against you…you're likely only going to experience about half as much damage as you would if you were trading GBP/NZD.

Therefore, the first thing is to pick a pair experiencing low volatility at the moment. The way to do that is to measure the volatility by using the Average True Range (ATR) indicator.

For instance, let's see what the ATR looks like on the USD/CHF daily chart below.

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Notice on the pair above that its swings aren't wild and out of this world. The swings are more narrow, and you'll notice that the pair seems to be more predictable too. That's the type of thing you want to look for in your "hitting singles" low volatility type of trade.

Once you've located your pair, you'll want to place the Bollinger Bands on the chart and a 50-day Simple Moving Average (SMA).

The Bollinger Bands note the overbought/oversold levels, and the SMA tells you whether you should be biased toward a "buy trade" or a "short trade." Let's take a look at what all of this looks like below.

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So here's how to use the indicators above:

If the SMA is heading higher, then only look for Bollinger Band buying signals, which is when the pair touches the lower band.

If the SMA is heading lower, then only look to take Bollinger Band shorting signals, which is when the pair tags the upper band.

If the SMA is flat, then you can take the next buy or short signal, whichever comes up first.

As an example, I've noted the buy and shorting signals that occurred on the chart above as I used the SMA to give me my bias as to whether to buy or sell-short.

Use a strategy like this and you'll be taking low-risk, "hitting singles" types of trades. The ATR tells you if you've got a pair that's low on the volatility scale. After you find the pair you want to use, you're done with the ATR and can even take it off of your chart if you wish, so that the price action will show up more clearly on your chart.

Then just add on the Bollinger Bands and the 50-day SMA and start looking for the next signal that the SMA tells you to take.

I hope you've enjoyed this "low volatility" strategy. You don't see many of them out there but I think this is a much-needed strategy. Also, if you're fairly risk-adverse, then this may become a staple in your trading arsenal.

Just this past week, my mother-in-law asked me how I got interested in the financial markets.

I told her that as a kid I enjoyed solving things. For instance, I worked at the Rubik's Cube until I could solve it in 30 seconds. I refused to give up until I'd cracked the code.

Later, in my early twenties, I turned on CNBC and saw the stock ticker scrolling from left to right at the bottom of the screen. I thought, "If someone could tell where a stock was going next, they'd be able to crack the code and make serious money."

I've been hooked ever since…

In fact, I've made a career out of learning how to play a mental chess game with the markets… learning how to win and profit. Occasionally, I stop and step back. Assess. See what profits I've made. And what mistakes. After all, that's how I know what to do more of… or what to do differently.

So today, let's look at several gems I've uncovered for you in Currency Capitalist Premium so far this year…

Of the various trades I've recommended with you over the last few months, just four have handed you over 1,000 pips of profit potential!

I sent you details about the first trade on May 10th. In the article, I discussed a triangle chart pattern I'd spotted on the GBP/JPY daily chart. Here it is again…

I emailed you while the triangle was still forming so you'd have enough time to make the trade. Shortly thereafter, the triangle broke out to the downside and had a 400 pip run. That's huge… especially considering it took just eight days to unfold.

I sent you details about a second trade just eight days later, on May 18. In the video I showed you an upcoming weekly doji candle breakout on CAD/JPY. If you'd made the trade, just five days later you'd have enjoyed a 184 pip.

Next, on June 7th, I taught you how to use Heiken Ashi charts. I issued a trade that gained over 270 pips in just eight days. Here's what happened…

AUD/CAD had just broken its downtrend and was forming some blue Heiken Ashi candles when I issued the buy recommendation. Every Heiken Ashi candle thereafter was an "up" candle, handing us a huge, steady profit.

Just four days later, on June 11, I emailed to tell you about the Hull Moving Average. I told you about Mr. Hull's preferred 16-week moving average and how that was the equivalent to the 80-period hull moving average on the daily chart. Then, to put the theory to the test, I pointed to the AUD/CHF pair, which was making the switch from the red hull moving average (noting a downtrend) into a green hull moving average (noting a new uptrend). Accordingly, I recommended you buy that pair.

Just seven short days later, the pair was already up 220 pips. Check it out below…

All totaled, these four trades have given you the opportunity to reap 1,074 pip gains in under two months. Next week, I'll show you some strategies I've put together to help you make even more money, in high- AND low-volatility markets. It will become your blueprint for successful investing.

This will go down in history as the dark age of free markets. Never before has there been so much market manipulation.

In the past, investors across the globe made decisions based on valuation and growth potential. Now, it seems only one thing matters: what will central bankers do?

This week was no different. Everyone waited to see what the world's most important central bank would do this past Wednesday.

The market wanted the Fed to crank up the printing press once again. Since the Fed has a history of not disappointing the market, expectations were high.

But the Fed, for once, resisted the temptation to print money. What does that mean for the U.S. dollar? Should you buy it?

Some traders were expecting the Fed to implement another round of money printing, a.k.a. quantitative easing (QE). But the Fed only announced an extension of its Operation Twist - a program where the Fed sells some bonds to buy others.

This is much less aggressive than QE because the Fed doesn't expand its balance sheet with new asset purchases. Technically, the Fed is not really printing any new money.

Does that mean the Fed is done printing?

Well, it's important to keep in mind that the Fed revised its prediction for the economy, saying economic growth will be more anemic than expected. Fed officials also expect a higher unemployment rate and lower inflation.

In other words, growth and inflation are moving lower, while unemployment is heading higher. Everything is moving against the Fed's goal of higher inflation and stronger growth.

I think there's a good reason why the Fed decided not to print: It wants to save some ammunition in case things continue to deteriorate. In fact, the Fed made an explicit pledge to print more money if conditions worsen. Here's what they said:

"The committee is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability. We are prepared to do what's necessary. We are prepared to provide support for the economy."

The Fed is ready to implement another round of money-printing if they feel it's needed. As I mentioned in an article a few weeks ago, the Fed will print if the current trends of higher dollar, lower stocks and cheaper commodities continue.

The fact the Fed did not implement another round of money-printing is good news for the dollar. It's bad news for risky assets, such as stocks and commodity-currencies. In the short-term, the dollar should resume its rally against pretty much all currencies.

The chart below shows the price action of the dollar index, which measures the performance of the buck against six other major currencies. As you can see, following the Fed's disappointment, the dollar is rebounding from the support area at 81.50.

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Also notice the dollar has been in an uptrend since late last year. It has been making higher highs and higher lows, and its 50-day moving average remains above its 200-day moving average. This trend is set to continue until the Fed decides to print money.

The most important thing for forex traders at this point is to monitor economic data in the U.S. If the economy continues to weaken, the market will try to test if the Fed is bluffing by pushing stocks and commodity-currencies lower. This will cause the dollar rally to continue.