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Trading the World

By , Forex Trading Instructor
27 June 2012 18:11 GMT

The FX market never closes. When doors are shutting for the day in New York, different doors are opening in Sydney for the start of a brand new day. And the machine known as the FX market does not stop. It just keeps on trading, allowing me to jump on for the ride at any point I might see fit.

Trading_the_World_body_Picture_6.png, Trading the World

And even though it’s the same FX market regardless of what time the trader is observing; it doesn’t necessarily mean that everything will be the same. As a matter of fact each major geographic market center can exhibit vastly unique traits and tendencies that may allow me to more effectively execute my strategies.

In this article, we are going to touch on each of these sessions as we had investigated in the previously released articles ‘Trading Tokyo,’ ‘Trading the London Session,’ and ‘Trading the US Session.’

The Asian Session

The trading week begins with liquidity coming in from Wellington, New Zealand – starting the ‘Asian-trading session.’

We looked at this period of the day in more depth in the article ‘Trading Tokyo.’ This was the period of time that had been determined to be ‘The Best Time of the Day to Trade Forex’ in the DailyFX Traits of Successful Traders research series.

In ‘The Best Time of the Day to Trade Forex,’ Quantitative Strategist David Rodriguez presents the logic that because of these smaller hourly moves and the fact that support or resistance may hold with a greater degree of consistency, trading ranges and range-based strategies could be the operative mannerism of execution.

Trading_the_World_body_Picture_10.png, Trading the World

Example of a range-based strategy using only Price Action

The London Session

At 3:00 AM ET, liquidity will begin increasing as London starts furnishing prices in the FX market. We explored this trading session in much more depth in the article ‘Trading the London Session.’

London is still very much considered the ‘heart’ of the FX market with the largest portion of liquidity coming from this area.

The onslaught of liquidity coming in from London can greatly increase the ‘average hourly move’ of major currency pairs such as EURUSD. The chart below illustrates this statistic based on the time of day; notice the increase that takes place as the Asian-trading session comes to a close at 2 AM ET.

Trading_the_World_body_EURUSD.png, Trading the World

From ‘Here is How to Trade Forex Majors like EURUSD during Active Hours’by David Rodriguez

This topic of addressing volatility with breakout strategies is a key component of the DailyFX Traits of Successful Traders research series. In Part 3, ‘Here is How to Trade Forex Majors like EURUSD During Active Hours,’ David Rodriguez suggests:

‘Breakout strategies tend to do relatively well in volatile environments, so if you plan to trade during these times, look to trade breakouts.’

Trading_the_World_body_Picture_3.png, Trading the World

An example of a Breakout Strategy utilizing psychological whole number support

The US Session

The US Session is often considered to be the most dynamic, as it can take on flavors of the London session early in the day – but trade more similar to Asia towards the end of the session. We investigated this in more depth in the article ‘Trading the US Session.’

Once again, analyzing the average hourly moves can give us a good idea for the type of volatility that can be witnessed during this trading session. On this example, I’ve added a line right at Noon ET so that we can see how greatly volatility can decrease once London ‘goes offline.’

Trading_the_World_body_Picture_2.png, Trading the World

From ‘Here is How to Trade Forex Majors like EURUSD during Active Hours’by David Rodriguez

As London begins closing at 11 AM ET, volatility begins declining quite a bit; so much so that it can alter the way that traders want to approach this portion of the US session.

As we outlined in ‘Trading the US Session,’ traders can look to trade breakouts to address the rampant volatility of the earlier portion of the day, range-based approaches can be used to address the less volatile, more quiet latter-portion of the day.

Noticing the Differences between Sessions

For short-term traders, it can be absolutely advantageous to have a good feel for the different characteristics of trading the ‘Asian’ session as opposed to the ‘London’ session.

For instance, a trader looking to ‘scalp’ on AUDUSD might be caught off guard if, at 3AM ET when the London market opens - price makes a break-away move against their position. Simply knowing that London was soon opening their books for the day, the trader could surmise that additional volatility may enter the picture and they can then properly plan their trade.

For traders that do want to get more comfortable with the various trading sessions, the ‘Trade Sessions’ indicator on Trading Station 2 is a big help. This is a custom indicator that any trader using the platform can add simply by visiting the previous link in this article, and applying the methodology walked through in ‘How to Install Custom Indicators on Trading Station.’ Doing so will bring a nice accompaniment to our charts, as seen below:

Trading_the_World_body_Picture_1.png, Trading the World

Created with Trading Station 2/’Tradesessions’ indicator

--- Written by James B. Stanley

To contact James Stanley, please email Instructor@DailyFX.Com. You can follow James on Twitter @JStanleyFX.

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Trading the London Session

Trading Tokyo

Trading the US Session

How to Build a Strategy, Part 1: Market Conditions

How to Build a Strategy, Part 2: The Time Frames of Trading

How to Build a Strategy, Part 3: Support and Resistance

How to Build a Strategy, Part 4: How to Grade Momentum

How to Build a Strategy, Part 5: Risk Management

Trading Psychological Whole Numbers

Traits of Successful Traders

When is the Best Time to Trade Forex

Here is How to Trade Forex Majors like EURUSD during Active Hours

How to Analyze and Trade Ranges with Price Action

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27 June 2012 18:11 GMT