Now turning our attention to the Forex markets even a day in the global calendar can seem a lifetime and so when we search for rationality we more or less attempt to frame the day's trading activity against the yearly price range and the 200 day moving average to understand what is going on in the 24 hours we roil and seethe with intense emotion in taking positions.
If we break down the FX clock starting from Japan and Asia we have three major segments starting with Japan then moving across to Europe for the second session and then on to New York for the US session. The bulk of the day trading is completed during Asian and Europe sessions.
Let's take a look at three charts marking the progress of the currency pair GBP/JPY from the morning Asian session to Europe session. The three charts comprise Japanese time 11am - 15.00 am 17.00 for Friday 11th December..
Chart 1 - 15 minute chart
As can be expected Japan overnight was fast asleep but come 6am Japanese traders start entering the market and volatility starts to explode and momentum takes a direction. Entering a trade on Japan open is highly desirable as the session is packed full of action towards it's tail end where it will overlap withe the main market Europe. China HK and Korea adds to the growing regional FX position and liquidity.
Japan session is a good window opportunity to tak a position for any key Europe an US data release if you are a swing trader looking to capitalize on a news release.
Now let's follow to 15.00 hrs the same day yesterday.
Chart 2
Come 15.00 hrs yesterday you will notice a lot of action has happened and we are now entering into a lull in the market which I call the dead zone where it would be unwise to stake a new position. The ideal long trade would have exited around 15.00 hrs prior to Europe open.
So what happens next?
Chart 3
On Europe open the market jolts up with a large green body and larger candle bodies follow to indicate a huge battle of red and green. there is a 45 mins tussle going on where huge money is pouring in to take positions. The Hanging man on the 15 mins chart preceded by a large red body is the straw that breaks the camels back and the market plunges. Traders would have come in with big shorts on the 14th minute on the large red candle following the green hanging man. Two large red bodies follow as price collapses in 30 minutes. But then the small red body over a large line is a serious warning that the market has run out of sellers. The large green body over the next 15 minutes would have seen big longs come into the market. Thus the first two hours of the Europe open presents two brilliant trading opportunities.
The currency markets tend to follow this similar pattern all year round and hence we can understand a rational structure of thin and larger volatility across the two time zones. Work with that volatility in the short term. Feel it's pulse.
As a rule I do not think it's a good idea to take large positions into the US session and try to exit after a key report by 10 am EST. Why? Pigs get slaughtered and the US session has thinner liquidity and you can become stuck into a huge dead zone of directionless trading as you drift towards Japan open. If you want to hang out for the big trade in excess of 100 pips in a day session you are going to get slaughtered. Taking 20 pips here and there over select currency pairs over the Asia and Europe time zone gives you better chance of a 6-4 win ratio. I try to focus 90% my trades during Asia and Europe session.
Always remember past performances are not indicative of future results and 90% of traders do lose because they always read into the markets what is in actuality not there.
Stay well friends
