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Forex is a 24/7 market – but is the market action the same at all times? Of course not, but not many traders stop to consider the impact of this fact on their trades. Studying historical price data reaching back to January 2000, the impact is clear, as shown in Figures below.
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One of the best ways to validate a technical indicator is volume. When volume is strong, indicators tend to be more accurate. Unfortunately, there is no volume data available for the forex markets. Using trading ranges is the next best thing.
Having this data in hand, the trader can more carefully evaluate when to trade. Not only will technical indicators generally have more accuracy at different points of the day, but there is both more profit potential and less loss potential at other times of the day.
Consider a trade in EURUSD at 10 AM EST vs. one at 10 PM EST. The first has an average trading range of 30 pips, the second, 10 pips. Entering the market during the morning trade creates some interesting possibilities – the market may go against you or with you, but you should be prepared for a ride in either case. On the other hand, if the market goes against you 10 pips at 10 PM, how concerned should you be? Probably not as much as if it was 4 AM.
For a more in-depth discussion of when to trade, including trend, days of the week, and other metrics, register for your free trial at FX Engines. All FX Engines users receive our periodic Case Studies which highlight automated trading strategies.
Anybody can trade based on technical indicators. The novice, in particular, ignores the importance of “when” as he makes trading choices. The sophisticated investor is the one who uses timing to his advantage – creating profit opportunities and limiting losses by observing the market with more perspective.
AM
Give yourself a chance! Trade when the market is most likely to help you. Take a look at the average trading ranges for the four majors below.[You must be registered and logged in to see this image.]
PM
The markets sleep when London and New York are off.[You must be registered and logged in to see this image.]
One of the best ways to validate a technical indicator is volume. When volume is strong, indicators tend to be more accurate. Unfortunately, there is no volume data available for the forex markets. Using trading ranges is the next best thing.
Having this data in hand, the trader can more carefully evaluate when to trade. Not only will technical indicators generally have more accuracy at different points of the day, but there is both more profit potential and less loss potential at other times of the day.
Consider a trade in EURUSD at 10 AM EST vs. one at 10 PM EST. The first has an average trading range of 30 pips, the second, 10 pips. Entering the market during the morning trade creates some interesting possibilities – the market may go against you or with you, but you should be prepared for a ride in either case. On the other hand, if the market goes against you 10 pips at 10 PM, how concerned should you be? Probably not as much as if it was 4 AM.
For a more in-depth discussion of when to trade, including trend, days of the week, and other metrics, register for your free trial at FX Engines. All FX Engines users receive our periodic Case Studies which highlight automated trading strategies.
Anybody can trade based on technical indicators. The novice, in particular, ignores the importance of “when” as he makes trading choices. The sophisticated investor is the one who uses timing to his advantage – creating profit opportunities and limiting losses by observing the market with more perspective.
