Best Timing Selection
Day traders have developed strategies based on the market’s microstructure, not on supply and demand, due to lacking information upon trading volume in the forex market. Most day traders try to participate in the market as much as possible throughout the 24 hours when the foreign exchange market opens. However, for each trading session, the currency pairs’ movement is very different. Thus, traders must preview the characteristics of each session.
According to BIS, the UK is the most active globally, accounting for 30% of the foreign exchange market. On the other hand, the U.S. is the world’s second-most active foreign exchange market after the U.K. but accounts for only 20% of the total foreign exchange market.
This is because most traders in the foreign exchange market have the opportunity to trade according to events announced in the late U.S. market or the Asian market the next day. Announcement of the FOMC is usually made around 2:15 p.m; New York time after the closing of the London market, the London market’s importance increases when the FOMC meeting, or the Fed members’ announcement, is scheduled.
The GBP/USD currency pair is the most actively traded in European markets, mainly in London. It is also actively traded when the European and U.S. markets overlap. But after this time, the trading volume drops sharply as British and European traders mainly trade GBP/USD currency pair.
As a result, day traders actively trade using the market’s initial volatility, which occurs within hours of opening the market. Dealers in the UK and Europe are well aware of the currency pair’s demand and supply, as they are the major market makers for GBP/USD. Therefore, it is desirable to use a market entry strategy when volatility increases after the market opens.
This is when the actual market volatility begins after the bank’s dealing desk checks its position and analyses information about the customer’s buying/selling stop order price level. After these stop orders are signed, the market price change trend is certain, and only at this point can the conditions for entering the market be considered.
This strategy works most efficiently when the U.S. market opens and after the release of key economic indicators. By taking advantage of this opportunity, we can eliminate noise in the early phase of the market and find an entry opportunity.
POWER HOUR
TIP1: Trading volume tends to increase during times of overlapping time zones in both markets.
TIP2: When Buy & Sell stop orders are concentrated at a certain price level in the market, the market’s volume and volatility increases as large-stop orders are executed.
TIP3: Dealers in large banks can increase Bid-Offer spread to customers so that they can execute the stop orders. This is possible as they know the customer’s position information and stop price level. This results in increasing market volume and volatility.
TIP4: These actions are referred to as Stop Hunting. Market volume and volatility increase, especially in the GBP/USD currency pair as the U.S. and European market overlap.
TRADING METHOD
Buy
1. At the beginning of the European market, the New York market is paying attention to GBP/USD movements from 1 a.m. The range of GBP/USD is created between Frankfurt and London markets at 2 a.m. New York time and represents a price change.
2. Currency pair flows rebound and continue to rise.
3. Place a buy-in preorder on top of 10 pips of the range formed between Frankfurt and London markets.
4. Place a stop order within the entry price of 20 pips.
5. If the position is raised to twice the stop set distance and profits are generated, clear half of the position, modify the rest of the position to the entry price, and set the trailing stop.
Sell
1. At the beginning of the European market, pay attention to GBP/USD movements from 1 a.m. New York time. The range of GBP/USD is formed between Frankfurt and London markets at 2 a.m. New York time, indicating a price change.
2. Currency pair flow is reversed and continues to fall.
3. Place a sell-in preorder under the bottom ten pips of the range formed between Frankfurt and London markets.
4. Place a stop order within the entry price of 20 pips.
5. If the position is raised to twice the stop set distance and profits are generated, clear half of the position, modify the rest of the position to the entry price, and set the trailing stop.