I’m sure you have heard that the market moves randomly and trading is just gambling, right? Depends on what goggles you are using. From the perception of a beginning trader, or someone that doesn’t have much exposure to the markets, this is probably true. You will hear this plenty of times but I will repeat it anyway, 95% of retail traders lose their money, especially within the first 3 years. You don’t have to go far to find this information. Your broker is required to give this information on their website.
Now, for the professional, profitable trader, this is not the case. Granted the random market theory is up for debate. Today we will look at timing. When I first started, especially with Forex because it can be traded 24/6, I would trade all times of day, every day the market was open. Then, I read an article on babypips (I think. I have a problem with bookmarks..) about a trader that was having problems trading. His mentor told him about only making trades during the most volatile times in the market. High volatility is when frequent price changes occur. Doesn’t matter how often a particular currency trades, if the price stays exactly where it was bought or sold because you would always be at a loss. That doesn’t help in determining whether the market is going up, down, or sideways; however, this is only one piece of the puzzle. Liquidity is another piece and it is easier to get an order filled when the market is “liquid”. Volatility is shunned when trading other markets like the stock market but since most Forex traders are short-term traders, this quality helps.
Back to the story, Our protagonist found some volatility data and started trading only at those times and his trading improved. He would only trade, let’s say, between the hours of 9 – 11 AM. He went further and looked at the most volatile days. So, now he would only trade between 9 and 11 on Monday through Thursday. Then, he learned about a trading journal which, contains the most important data: one’s own personal data. He noticed that he lost a lot of trades on Mondays so, he cut Monday out and only traded on Tuesday – Thursday. The next time he spoke with his mentor, his trading had improved greatly. To aid you in this endeavor, I have gathered data from Market Milk from the babypips website. Beginners should probably stick to the Major pairs: EUR/USD, GBP/USD, USD/JPY, AUD/USD, USD/CHF, NZD/USD, USD/CAD. I took three of these pairs: EUR/USD, GBP/USD, and AUD/USD, and data from Market Milk to form charts. MM had charts on their website but I wanted to make my own.
Looking at the charts, notice that the most volatile hourly time is 9 AM, daily, Monday for GBP/USD and AUD/USD and Thursday for EUR/USD, and for monthly, March. If it is your first year and you have no prior knowledge, I would almost guarantee that you would make more money trading only the month of March, from 9 – 11, on Mondays and Thursdays, than you would trading every single day the entire year (don’t hold me for my word on that. I’m not responsible!).
“These market-moving transactions happen among large banks during their respective banking hours.
Moreover, not all branches of a certain big bank will do these large-scale cross-border transactions. For example, a small branch of the Bank of America in Louisville, Kentucky. However, its downtown Manhattan branch in New York will certainly engage in large-scale foreign exchange deals. Similarly, a branch of the Swiss multinational investment bank, UBS Group AG, in Bangkok will have a lower transaction volume in the Forex market compared to its branch located in a major Asian financial hub like Singapore. Hence, banking hours in the time zone of major financial centers like Tokyo in Japan, Singapore City in Singapore, Frankfurt in Germany, London in the United Kingdom, and New York in the United States generate the bulk of the trading volume in the Forex market. Therefore, liquidity and volatility are usually higher when markets are open in these time zones.”https://www.forexchurch.com/forex-market-hours#l2
The most important times to recognize technical patterns will be when the markets overlap and the first few hours after the markets open, depending on the session. Who is moving the markets the most? Who has the most money in the game? This would be the central banks that supply money to commercial banks and flows down from there. Often referred to as the Big Four: Bank of England, Bank of Japan, Federal Reserve, European Central Bank.
I imagine with all the money flowing through these banks that the guys and gals probably don’t have to work much overtime. From around 3 – 11, during the open of the European session and the overlap of Europe and US, is the best time to look for clues in to which direction the market is heading.
The best traders wait a few minutes after the open before entering a trade. If you have actually taken a few trades then, you know what is supposed to happen: buy low, sell high or sell high, buy low. If your are not a trading genius; however, like most of us in the beginning are not, you will probably end up doing the exact opposite, until it feels like we have someone personally assigned to watch our trades and make it go in the opposite direction.
It is said that prices trade within a given range 70% of the time so, if we are trading at times with lower price movement, this is a recipe for disaster. This is normally called “consolidation”. Basically banks are keeping the price within a very tight range but sometimes moving slightly lower or higher. Just when one thinks there is going to be a breakout or breakdown, price swings in the other direction. That is, until it is time for price to move; and when it moves it will move! You will notice price go nowhere for a while and then, all of a sudden, move up or down, forming a “leg”.
Since charts are fractal (a story for another day), you may notice this on a daily time frame and think of how easy it would be to make money with such a big move. But many times, after you break this down to a lower time frame, you will see a lot of up and down movement. Many times, say in an uptrend, price will move down a bit at the beginning, and then proceed upward.
From a normal perspective, if you are watching a buy position, this can be frightening, causing you to close for a loss or lower profit. After exiting the trade, you watch in disarray as the trade continues in the direction you expected. This goes back to being patient. Then, you will have times when price moves swiftly against you and you need to take immediate action. But this is what a stop loss is for. This way you do not have to stare at the chart for hours and have your own psychology trick you out of a good gain.
Blue arrow is where I originally entered this highly volatile pair, Great Britain Pound/South African Rand, without stop loss or profit target, even after saying I would never trade it again because it has been my greatest blessing and greatest curse. Note, I am at break even, give or take. Because of the spread, may be a few pipettes in either direction but if I had entered with better technique, I could have captured 1,000 pips or more in a short period of time. It is also important to note that 1,000 pips on a day trade is not common for most pairs. This is not a pair that I recommend trading without proper training and experience.
The next article may, and should be, multiple time frame analysis. We’ll see. It’s quite beneficial to study the way price moves or in other words, analysing price action. There are many discernable patterns to be observed that when combined with the right timing, can be most profitable. So, we want to focus on the overlapping sessions and trade on the most volatile days which, Tuesdays – Thursdays would be a good start. Then add your personal data from your trading journal to tweak strategies. A word of warning; however, is that if the market is too volatile, this can yield negative trades, as well.
As in life, there is a balance. This is where we get into other types of timing like the NFP (non-farm payroll) released monthly. Although this is probably the most important economical figure, it is not too important to discuss what all is included but basically, this is a report that contains how many jobs were created, leaving out farming, government, private, and non-profit jobs. Unlikely as it may be, say you have been on a roll on Friday’s. Traditionally, in the US, NFP report is released on the first Friday of every month. As pride gets in the way, your best month is coming up, March, and you put on a big trade because of a high number being reported in the NFP report (‘merica!). You’re not even worried about a stop-loss. Then, the unthinkable happens. USD sells off. After exiting trade and losing more than expected, price rallys to new highs for the greenback! This is known as getting “whipsawed”.I have even heard it called the “market maker move” (because it takes big money to move the market in a seemingly random way, all the whist taking 95% of everyone’s money.) I have always said that the biggest criminals in the world will greet you with a smile and a handshake and they won’t have to rob you; you’ll give them your money. (Ha!)
Study the charts well enough and you will notice these patterns are not as random as they may seem. Different pairs have different feels but try watching your demo or live account, without even taking a Trade, for as long as practical. A few things you may notice:
As can be seen in the volatility charts, volatility is low in the beginning of the week and gradually increases and around Wednesday, starts declining. You may notice on charts that in the beginning of the week, price will go in opposite direction of overall trend and reverse in the middle of the week. This can also be observed by session times. Often, London session will start a trend, US continues the trend and after London close, prices may be stuck consolidating in a tight range then, the Asian session kicks in and goes in the opposite direction.
The first time you notice this, don’t think you have found the “holy grail”. You know nothing is that easy but the point is that simple patterns like this repeat so, if we determine the current trend in whatever pair we are trading, and enter a position at an optimal time that is primed to take-off, we can spend less time losing money and use time to gain an advantage. You can’t beat the market so, join it.
This is a good point to stop and plead for anyone with any questions to contact me. I am not a financial planner (yet) and cannot legally offer financial advice but I can give you information, find someone with better information, or someone that may relay certain information better than I can. I have seen a great deal of free content online but besides some of the books that I have bought, have not had to pay for much. Sounds gravy but it’s a double edge sword because the quality of content I gathered the first year and a half was pretty much rubbish.. Or I wasn’t ready to understand. Which leads us to another situation where waiting for the right time will yield much better results. Switching from demo account to live account.
Now, my friends from the very beginning know that I have never been big on trading demo; although, I highly encourage it. Demo trading gives one the experience without the risk. But there is a catch. Trading a demo account feels different from a live account. For one, you don’t have real money at stake so, it’s like playing a game of monopoly. You may be very competitive and want to win, but in the end, there’s only fake paper money at risk (much like “real” money today, huh? Burn them printers up FED’s!).
If you are under capitalized, like a great deal of traders starting out, the huge amounts you are allowed to trade with on demo, feels different, as well. I started out with a free stock from Robinhood and added only a few dollars a week. Then, I would make trades on anything I could afford. I still remember “winning” my first $20 on Robinhood and on Forex.com. I cannot remember the actual stock but the pair I traded was GBP/USD. I tried the stock again and lost probably $40. I think I ended up around $80 in the hole after trading the currency pair. One way or the other, you <>will<> pay for education in the markets. There are no shortcuts. When you pass go, you lose $200 and I wouldn’t put it past having a free ride in the paddy wagon to the local homeless shelter.
Many professionals recommend trading demo account for 3-6 months, and I concur (I just realized that this sentence may be mistakenly interpreted that I am a professional. I can be quite egotistical at times but the market has whipped me enough to, at least, humble my opinion of my trading capabilities. I am on my way but no pro, yet!). Study different strategies. Study the times where the market makes the biggest moves. Compile your personal data and backtest. I read everything that I am writing about when I started but I wanted to be an untrained genius. Unless you discovered theory of relativity or can control a wheelchair with nothing but the breath in your lungs (and even at genius level I would be iffy about gambling with my hard-earned skrilla), heed my warning and trade demo for the first few months while, soaking up all the knowledge you can from different sources. Once you get a feel for this information, you should be critical about limiting the amount of information you let in, lest you get information overload which, is why I am trying to take you through this journey as slow as I can, without offending anyone’s intelligence.
Leave a message and let me know what you would like me to write about next. In the next few weeks, I will try to find more advanced strategies to show you that takes advantage of timing and patience to wait on the perfect setup at the perfect time. In the words of the great Bugs Bunny, “That’s all, folks!” \m/
Futures and options trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with money you can’t afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this video or on this website. The past performance of any trading system or methodology is not necessarily indicative of future results. CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVERCOMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. All trades, patterns, charts, systems, etc., discussed in this video or website and the product materials are for illustrative purposes only and not to be construed as specific advisory recommendations.