Trading the Forex Waves for Profit
By Jade Gate / Forex District – Just like surfing the ocean waves, there is a right time of day to catch the incoming or outgoing Forex tide waves. When the time comes and “the surf is up”, there is also an exact right moment to harness the maximum power of the individual wave as it approaches (on the cusp of breaking) and rushes in to shore. This is what support and resistance is in Forex, why it is so important, and why knowing where these levels are, having them plotted on your charts and trading them, and only them, is critical to trading Forex successfully.
The 24 hour cycle in the trading day has very distinct moments of opportunity to profit due to higher liquidity (more market participants with deep pockets) than other times. Arriving late to the wave breaking party is something a trader learns to avoid. Arriving on time or just ahead of time has tremendous benefits, including reducing the risk of trade failure while simultaneously maximizing the potential to profit in full from a given move. Catching the wave as it breaks and riding it in to profit shores is what makes money in this market. Many other lesser waves may come and go. A good surfer knows that it is worth by-passing the distractions while waiting for the best waves.
Forex traders often keep very strange hours due to the wave-trading windows of opportunity (especially the US East Coast traders, often up in the middle of the night US time to catch the London/Europe wave).
This article is a brief summary of the global trading sessions in approximate order of wave-trading priority. Also included are several of the regular special events in the currency calendar year.
In approximate order of priority –
2. US Open. (Rip Tide Potential Beware). This session commences at 7am US ET. This is “Game On” time when the serious counter-trend challenge often begins. The US commences work for the day – it is the time of day when the USD is most likely to find or extend its support, or conversely, in a bull market, the US traders add their weight to the Dollar selling pressure. An hour earlier, at 6.00 am US EDT, the LIBOR rates (London Interbank Offered Rate – the short term interest rate at which banks loan to each other for the next 24 hours) are set in London. It happens on occasion that once the daily LIBOR rates are set (especially on a Friday, ahead of the weekend LIBOR rates), a given currency that has been performing very well may be sold off hard immediately after the LIBOR fixings. Some traders prefer not to trade on Fridays for this and other reasons (including the Quad Witching* every quarter) related to volatility and unpredictability ahead of the weekend.
3. US Equities Pre-Open. (Tide Wave Pre-Peak). Typically in a bull market, equity markets do much of their buying in the first 1 or 2 hours of market open. This speculation is often reflected in the currency market as it tracks the futures data. The majors often gain ground at the USD’s expense during this time. Red futures in the time slot pre-open, of course, indicate that market may go short that day, hence look to trade the majors short if so.
4. US Close. (Tide Going Out). Typically this occurs from around 7.30 pm US EDT, picking up speed around 9.00 pm. The US traders are bedding down the Dollar for the night, often buying it up at this point through until around midnight. Usually a good time to short the majors, not normally a good time to open a long position. After midnight, Asia then takes over, often reversing this move in anticipation of the upcoming Europe session.
5. Overlap US and Europe while the Dow is trading. (Tide Peak). This time of day is the point when market is at its most liquid. All major players are present and participating fully. This often results either in tight grid-lock between bulls and bears, or when sentiment shifts as a result of good/bad earnings or good/bad economic data, in forceful moves in either direction.
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Special Regular Events
Non-Farm Payrolls (NFP). is the premier event in the Forex monthly calendar, reported on the first Friday of each month. It is often characterized by high volatility (100 pips +/-) that frequently goes in one direction first (on immediate data release) but often retraces with equal force in the other direction. Potentially a very lucrative trading opportunity. Check your broker spreads before trading, spreads often widen considerably during this event.
End of Year Closing of Books. Typically, in December of each year, institutional trading houses close out their books for the year to log profit. This can generate extreme volatility in the currency market. If the USD has put in a good year for example, this is the time of year when it will be sold down hard regardless of fundamentals. Potentially very lucrative trading opportunities.
*Quad Witching
The day on which contracts for stock index futures, stock index options, stock options and single stock futures (SSF) all expire. Quadruple witching days occur on the third Friday of March, June, September and December. Volatility in the currency market can result due to traders closing out or adjusting positions to meet cash contract obligations due that day or to re-position for the new contract period. Something to note and forward schedule in your diary.
By Jade Gate
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