4 Best Techniques to Find Forex Market Anomalies
- By FXT
- November 01, 2023
- FXT Analysis
Market anomalies exist when a market is out of sync with its normal pricing or market conditions, presenting an opportunity for traders to exploit the anomaly in order to turn a profit.
Anomalies often don’t last long in the market, but are highly valuable so in this article, we take a look at what can create a market anomaly and how you can work towards identifying it.
Anomalies are often created when there is increased volatility and price movement in the market, so let’s take a deeper dive into when these situations are likely to occur.
News and data announcements that are planned can be found in an economic calendar, and expected news announcements can really get the crowd pumped up. Data announcements often see huge volumes come into the market creating big volatility and price movement which sometimes leads to market anomalies that can earn a trader a pay day.
Using the economic calendar and the detailed features within the FXTRADING.com calendar, can be a massive leg up when it comes to understanding what normally happens based on certain data outcomes and timing of price movements in the past.
Major world events can really shake financial markets up, creating unusual price movement and volatility. Keeping up to date on world events can give you the upper hand when it comes to financial markets.
Think events such as the below, each having major impacts on global financial markets:
· World Trade Centre Attacks
· Fukushima Nuclear Accident
· Russia and Ukraine War
· Israel and Palestine War
· Global Financial Crisis (GFC)
One key indicator to watch out for is that for each of these events the ASX200 Stock Index Market had recently had a price near the highs of a 2.0 Bollinger band on a weekly chart. When you see the markets peak the highs and reach upper bands on larger timeframes, it’s time to be wary.
Market Opens and Expiring Contracts
Knowing the ins and outs of a market is important in understanding how it functions. Did you know you can dig deeper into markets to find out when options contracts are set to expire, when the markets open and close for trading and much more?
Searching and reading up on the official website of the market you want to trade and learning everything about their official timing of contracts, market hours and other interesting facts that may give you an edge over other traders without the same knowledge.
As an example, when options expire, it can create increased volume and volatility in the market and create potential for trading opportunities.
Additionally, the market open times for markets like indices can find higher volumes being traded close to the time of the market opening, also termed the opening bell.
Markets are correlated in some form, whether they are inversely, partially or completely correlated, this can create opportunities when one of those markets falls out of that correlation cycle.
In a more simple term, when you have two markets that are closely correlated, but one of those markets moves higher than expected as the other market moves lower, this can create an opportunity for a buy of the lower market and a sell of the higher market, then wait for those markets to rebalance and find their normal correlation.
This scenario may mean that one of the trades will lose slightly, however the winning trade should ultimately hold more value than the losing one. In an ideal scenario, both trades turn profitable as the markets move towards center.
Finding these opportunities first requires knowledge of which markets are correlated, or perhaps inversely correlated (in which case both trades would be in the same direction, rather than opposing) and the ability to determine when those markets have fallen out of that correlation.
These 4 techniques can help find anomalies in a range of markets from forex markets through to indices and commodities. FXTRADING.com offers tools including the economic calendar which has an additional feature that shows historic volatility on currencies following an announcement. You can even select and view different timeframes after the data announcement to see what happened within 5 minutes, 15 minutes, 1 hour and 4 hours after the event. If mean reversion is your thing, the correlation tool offered by FXTRADING.com can help guide you on what currency pairs, indices and commodities are correlated and to what degree they are correlated.