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Location: Blogs Top Postings/Articles on Top Forex-Websites |
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| Posted by: Pat |
4/11/2007 2:30 PM |
Apart from the seemingly endless list of factors the trader must take into consideration on a daily basis, certainly the most important decision the novice trader has to make initially resolves around trading hours. This isn’t an issue for swing traders, of course, but it is a critical one for the day trader.
The ability to identify trends is the key to success when it comes to pivot point trading and it’s a fact of life that trends are far easier to identify during periods of high volume and high volatility. This isn’t to say that a pivot point trader can’t generate profits during off peak trading hours, but during lull periods trends are not as easily identified because currencies have a tendency to become range bound. To generate a commensurate level of profitability, therefore, one has to focus on making a high number of short term trades that are not as easily supported using traditional trend analysis.
As we all know, the forex market revolves around three, primary market centers — Asian (beginning with the opening of the New Zealand Stock Exchange), London, and New York. While the bulk of trading occurs the first four hours of each local session, the highest volume of trading occurs during the overlap between the London and New York trading sessions which runs from about 7 a.m. to 12 noon Eastern Standard Time (EST).
The high level of activity during this period is largely driven by US economic reports which are issued at 8:30 a.m. and 10:30 a.m. EST. These reports generate a high volume of trading because the perceived strength of the US economy and value of the US dollar have the greatest impact on trading volume. Trading opportunities can be had the rest of the day, but trends are not as easily identified.
The second peak volume period is generally going to be the overlap between the Asian and London sessions (3:00 a.m. to 7:00 a.m. EST) which coincides with the opening of the London session. This a shorter period, but offers the potential for quite a bit of activity, especially when Japan and/or China issue their economic reports or have taken action to control their reserves or manage trade balances.
With respect to the London/NY overlap, novice traders are well advised to avoid news trading — specifically, taking positions in anticipation of or shortly after the issuance of any of the following major US economic reports: US Non–Farm Payrolls, FOMC Interest Rate Decisions, US Trade Balance, US CPI, and US Retail Sales. No one knows how the market is going to react to any of these reports so taking a position in anticipation of movement becomes a 50/50 proposition at best. If the trader guesses right he/she can make big profits, but stop hunting is easily disguised as volatility so the trader’s positions are at far greater risk. This is why we recommend traders avoid taking positions until a new trend has emerged and that normally happens at the earliest a half hour to an hour after a report has been issued. |
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