Volume and Volatility: The New 24-Hour Global Market

by: The LFB

Last week the move higher in equity market trade sent forex pairs soaring lower against the U.S. dollar, with the sudden surge higher in equities being balanced with a big drop in commodities. It all came on huge volume that allowed the move to hold through to the end of the U.S. session, and offered up the perfect example of what fear of potential loss and automated orders can do, in very short time, to price and sentiment.

With over 90% of all orders now instigated by certain pre-set criteria the mathematical algorithms (quantum boxes) spit out trade after trade, that match a move in one market with a move in another. The black boxes have struggled with this before; they do not seem to be designed to deal with ten times the average daily price movement in one sitting, and that enabled what may have been a test of resistance on Friday to turn into major equity and dollar positives, and an absolute rout for oil, commodities and forex cross pairs.

Gone are the Halcyon days of trading what needed to be traded in order to achieve an objective over time that could turn into a trend as the markets absorbed the moves. Instead, welcome to the current environment of instant rewards, fear of loss on existing positions, fear of loss in positions yet to be taken, and desire for gain that seems to turn into rabid greed at the flick of a switch. Fear and greed have always been the main component of any market, the difference now is the need for trades to conform to pre-written computer coding that gets things done in rapid time.

This really could be the monster that technology created in the development of a new trading environment that seems to run off sound-bite headlines to justify each tick, pip or point, and one that has reduced a trending market definition from three to six months, into three to six days. The markets are evolving, chart patterns are developing more quickly, reaction to fundamentals is instant, access to information comes at lightning speed, and yet the fundamental drivers are the same. The forex markets are being driven by the same fundamentals, the difference is the evolution in the reaction time that technology has allowed to now move at warp speed.

Welcome to the 24 hour global market, and welcome to an automated trading world that is re-defining how trade desks have to look at things. It would seem that the sharp eyed retail trader may have the edge as this evolution takes place. This is how things will be it seems, it has become the norm. We are getting the same results, it is just now that we are getting them in quick time, and with lots of noise.

Disclosure: No positions.