Forex is All About Time

Friday, November 7, 2008

Traders spend a lot of time and money trying to figure out HOW to trade.They expend an enormous amount of their resources on systems,methodologies, techniques, and strategies that ultimately will give them only half of what they need. The secret the professionals don’t want you to know, however, is WHEN to trade. After all, they are on the winning side of every one of your losing trades.

Even though the Forex is open twenty-four hours a day, there are times when the market for a given currency pair is highly active, other times when it is moderately active, and times when there is no activity at all.

While you can make money whether the market is moving up or down, it’s extremely difficult to make a profit when the market is moving sideways.

And since the market for a particular currency may spend 60% to 75% of its time moving sideways, it is very important to know WHEN the trending activity is most likely to occur. It’s also easy to enter the market at the tail end of a trend and not know, except in hindsight, that the end was so near. After all, the indicators were telling you the trend was still going strong—so if you don’t know that this particular pair makes seven-bar moves, you go ahead and enter on the sixth bar of the trend. Two bars later, your trade is heading south in a hurry. It’s critical to know how many bars a trend is likely to last before there is a retracement or consolidation period, given the day of the week and the hour of the day the trend first began. Exiting too late is another common experience many traders share. At 6 AM, you place a contingent (IF THEN) order with your entry price and your stop loss, and head off to work. At noon, you check your trade and find out that by 11 AM the market had moved 90 pips in your favor. But in the last hour the price dropped 65 pips. The next time you’ll be able to check your trade is after work, so rather than tighten your stop loss to break-even in the hopes of a rally, you exit the trade at market for a 25-pip gain. That’s certainly better than nothing, but if you had known how many pips this currency pair was likely to move given the day of the week and hour of day the trend began, you could have set a target to exit with an 85-pip profit. Thus, if you know for a given currency pair the best days and hours to trade, the likely number of price bars the move will cover, and the number of pips this pair will most probably move, you would have to agree that you would possess some very powerful knowledge.

What does a typical 24-hour Forex trading day look like?Before we get into WHEN to trade, let’s take a closer look at a typical day in Forex time. This information is generally available on the Internet, but has been compiled here for your convenience.

Technically, the Forex operates on a global time scale, twenty-four hours a day, seven days a week, with no start or end time. Given that no one stays awake 24 hours a day and that very little trading takes place on theweekend (from Friday at 13:00 PM US EST to Sunday at 17:00 PM US EST), the Forex trading day naturally breaks itself down into three major trading sessions:

1. the Australasian session (New Zealand, Australia, and Tokyo)

2. the London session, and

3. the New York session.

It’s interesting that these sessions just happen to coincide with the opening and closing of their associated stock markets.The first thing you probably noticed is that from the New Zealand open to the New York close, the entire 24-hour day is covered. What’s more, you can see that the Australasian session has three stock markets open at the same time, with the last hour of the Australian and Tokyo sessions (3:00-4:00 AM US EST) coinciding with the opening hour of the London session.Furthermore, the London and New York markets share the hours between 8:00AM US EST and 13:00 US EST. In other words, from 19:00 US EST to 4:00 US EST and from 8:00 AM US EST to 13:00 PM US EST, two or more markets lap. In fact, the areas highlighted in yellow represent the Forex market’s busiest fourteen hours. This is because when two or more markets share the same hours, there are more traders to drive volume and volatility up.

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