The foreign exchange market is a market in which trading occurs between two different currencies, and the rate applied between the two currencies is the exchange rate. To accurately understand the exchange rate, it is necessary to look at the structure of the foreign exchange market and the trading mechanism.

In most countries worldwide, under an open economy, the need for foreign exchange trading for foreign exchange has grown as various forms of financial transactions have expanded compared to the past. This is because cross-country or cross-border physical and financial transactions require internationally widely used foreign exchange, mainly the U.S. dollar.

The examples of foreign exchange trading are very diverse and extensive. If an individual travels abroad, the person must exchange the local currency for foreign currency.  For exporting company that sells the product in US dollars will eventually exchange it for domestic currency, resulting in forex trading.

In the case of financial transactions, direct investment in foreign companies, securities investment in overseas stock markets, and purchases of overseas real estate will require international currency. If a foreigner purchases stocks or government bonds, they must convert the foreign currency into domestic currency, which must go through the foreign exchange market. Thus, economic entities can engage in economic activities between the two different currencies via the foreign exchange market.

 

Characteristics of the FX Market

 

1. The foreign exchange market is much larger than other financial markets, such as the stock market and derivatives market.

 

– The average daily foreign exchange transactions worldwide surveyed by the Bank for International Settlements were about $5 trillion in 2016, about 170 times the daily average trading volume of the New York Stock Market.

– This is due to the rapid expansion of cross-border trade and financial transactions over the past few decades, which has necessarily increased the size of foreign exchange transactions.

 

2. The foreign exchange market has the property of continuous 24-hour trading as a global market.

 

– This is because foreign exchange markets in New York, Tokyo and London, the world’s major financial centres, will open continuously over time.

– For example, before trading between the USD & JPY in the New York foreign exchange market, these currencies will begin trading in the Tokyo foreign exchange market, followed by the London foreign exchange market. And again, New York foreign exchange market the following day.

 

3. Transactions in the foreign exchange market mainly have the nature of over-the-counter trades.

 

– Over-the-counter transaction means that an individual customer buys or sell foreign currency at the bank’s counter. The bank decides the transaction price individually, considering the counterparty’s offering price or credit. Usually, banks apply exchange rates differently in consideration of differences in the creditworthiness of companies or individuals who are customers of foreign exchange transactions.

– In other words, in-stock transactions through exchanges, a relatively more tightly defined trading mechanism is applied equally to many participants. In contrast, foreign exchange market transactions are based on individual characteristics such as a customer.

 

4. The foreign exchange market is very efficient.

 

– The exchange rate, which is the price formed in the foreign exchange market, will be adjusted quickly in the event of a disturbance between each market.

– For example, if the JPY/USD exchange rate differs between New York and Tokyo, foreign exchange traders may benefit from arbitrage by purchasing relatively cheaper currencies in one market and selling them in another.

– The arbitrage of these two currencies will continue until the exchange rate in the two markets is about the same level. Recently, as the development of computer transaction techniques and the proportion of program sales have increased, even if the exchange rate between the two markets is slightly different, the efficiency of the market has been increased.

 

5. The three major currencies – the U.S. dollar, the euro and the yen – are very high in the global foreign exchange market.

 

– According to a survey conducted by the International Payment Bank, the three major currencies account for about 70 per cent of foreign exchange transactions worldwide.

– This is because the currencies used in international trade settlements, overseas bond issuance, and foreign exchange reserves are concentrated in these three major currencies, meeting the essential functions of the currency’s value, exchange, and value storage.

 

 

 

Structure of Forex Market

 

 

The foreign exchange market consists of an interbank market and a customer market. Economic players participating in the foreign exchange market are customers who do business with banks and companies, non-banking financial institutions, individuals, governments and foreigners. 

 

An Interbank Market

 

The interbank market is a wholesale market where large amounts of money are usually traded among banks participating in the foreign exchange market, playing a pivotal role in the foreign exchange market. The interbank market also functions as a link between the domestic foreign exchange market and the international financial market. The interbank market plays a central role in the foreign exchange market because banks traditionally have the following foreign exchange incentives.

 

1. Banks handle FX transaction of importing and exporting companies.

 

 

If an exporter sells U.S. dollars earned from exports to its main trading bank, the bank will sell foreign exchange in interbank markets using exchange rates designated by the exporter and pay local currency to the exporting company. As a result of these foreign exchange transactions, banks will bear the risk of exchange rate fluctuations. 

 

2. Banks avoid currency risks by interbank transactions and seek profit through active FX trading.

 

 

When the exporter sells the foreign currency, banks will have increased exposure to foreign currency. To hedge the volatility of the exchange rate, banks tend to sell the foreign currency in the interbank market. 

Banks also seek gains by actively trading on their own exchange rate forecasts. If banks expect the exchange rate to rise (fall) in the future, they would buy(sell) foreign currency in the interbank market to gain profits from exchange rate fluctuations.

 

3. Market makers provide liquidity to the FX market.

 

 

Market maker means an institution that presents two-way quotes to the FX market and supplies liquidity. In other words, market makers increase the efficiency and stability of the foreign exchange market by reducing the ask-bid spread.

Most of the interbank transactions go through FX broker for efficient transactions. This is because the cost to find the best selling price is high. The brokerage serves as an intermediary who earns only brokerage commission income for banks by providing real-time buying & selling prices and volume information to participating banks through trading platforms.

 

Customer Market

 

The customer market is a retail market in which FX transactions are made between banks and customers. The exchange rate is determined in the interbank with the commission added. Here are the 4 major fun facts about the customer market! 

 

1. Banks charge different fees for different customers.

 

 

Banks charge transaction fees incrementally for each customer depending on the counterparty’s creditworthiness, size, or type of transaction, and they usually receive more commissions for individuals than for companies. 

 

 

2. Customer market is expanding rapidly after the year 2000.

 

 

Customers participating in the global FX market greatly expanded since the 2000s. Global hedge funds, mutual funds, public pension funds, and insurance companies are the major non-banking financial institutions that increased global portfolio investment. Recently, more individuals are professionally trading in the FX market and online brokers are the catalyst to this phenomenon.

3. Technology development provoked various form of market.

 

 

Due to the steady development of computer technology, the form of the FX market also evolved. For example, the International Investment Bank and Reuters are increasingly developing and distributing independent brokerage systems to institutional investors and performing the function of the prime broker.

Thus, traditional customers such as hedge funds can access the interbank market directly using the bank’s ID. Also, individual investors use retail FX brokerage platforms, which greatly reduced transaction costs and improved convenience.

 

 

4. Algorithm trading takes a big part in the market.

 

 

As artificial intelligence are actively participating in the FX market, most of the trading volumes are generated via high-frequency trading. The orders are automatically executed according to pre-designed trading strategies without human emotions. This has lowered the ask-bid spread and increased efficiency and transparency.

Exchange Market and Exchange Rate

Swap is a transaction representative of exchange swap forward and foreign exchange swap X swap transaction. Futures exchange transactions occur on certain future days, while the exchange rate is fixed at the forward rate. For example, in the case of traders who need foreign exchange at a certain point in the future, foreign exchange can be secured in advance at a fixed price (gift exchange rate) through forwarding exchange transactions. Conversely, if you want to sell foreign exchange in the future, you can sign a contract to buy a foreign exchange using the current exchange rate. In both cases, fixed futures exchange rates can avoid the risk of future exchange rates fluctuating.

Exchange swap transactions are transactions in which two traders exchange two different currencies at the current contract rate and re-exchange principal at the time of maturity, such as spot exchange and futures exchange at the same time. The exchange swap market is different from the spot exchange market, judged through the spot exchange rate. It understands the supply and demand of foreign currency and liquidity through the swap rate, which is the difference between the futures exchange rate and the spot exchange rate.

Other foreign exchange market transactions include currency swap, CRS currency swap, and currency option exchange options. Over-the-counter derivatives market transactions such as gold lease swap can also be seen as broad foreign exchange transactions. The main reason for various foreign exchange derivatives transactions other than spot exchange transactions is to hedge the risk of exchange rate fluctuations or actively increase the return rate by investing in foreign exchange-related products. Banks often seek to maintain main trading relationships with customers by becoming counterparts to the demand for exchange hedge trading by companies.

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Foreign exchange market and balance of payments

The average daily trading volume (including interbank and customer transactions) in the global foreign exchange market reached about $6.6 trillion as of 2019. Despite the global financial crisis in 2008, foreign exchange transactions accounted for the largest portion of traditional transactions (48.6 per cent), followed by spot exchange transactions (30.3 trillion dollars). The volume of currency swaps and currency options is relatively small.

1. Other foreign exchange derivatives included: Bank for International Settlements

Meanwhile, the volume of foreign exchange market transactions in Korea accounts for most traditional foreign exchange transactions, such as spot exchange, futures exchange, and foreign exchange swap transactions. Among them, spot exchange transactions steadily expanded due to the development of the real economy, such as Korea’s trade and the expansion of domestic and foreign securities investment funds, recording an average of 198.3 billion dollars per day as of 2019.

Futures exchange transactions have been the most widely used currency hedging instrument for Korean exporters such as shipbuilding and heavy industries. Also, since April 1999, when foreign exchange banks and non-residents were allowed to trade off-shore differential settlement futures, the portion of the transaction has accounted for a significant portion of the exchange transaction. However, the amount of exchange transactions in the interbank market is not large.

Foreign exchange swap transactions have been mainly used to address the excessive shortage of won and foreign currency funds or as a means of exchange hedging. In particular, foreign branches can raise foreign currency funds from their home countries without a currency risk and use them for financial arbitrage in Korea. Recently, as Korea’s overseas securities investment has steadily increased, investors have been widely used to raise foreign capital to avoid currency risks.

Other foreign exchange-related products such as currency swaps and currency options are traded, but the size is tiny.

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Foreign Exchange Market and Balance of Payments

Using the exchange rate information presented here, we should note that this price means nominal exchange rate. The nominal exchange rate is a concept that is relative to the real price of a currency and is independent of the actual change in value, such as the purchasing power of that country’s currency. Second, the proposed exchange rate results from foreign exchange trading by foreign exchange dealers who participate in interbank foreign exchange markets in a country or a particular foreign exchange market. Therefore, it is distinct from the customer exchange rate that banks apply to businesses or individuals by adding or subtracting a certain spread based on the interbank exchange rate. Third, information on exchange rates may vary slightly depending on the foreign exchange market in which banks made the transaction and the media that provided the information. Therefore, it is necessary to identify when the exchange rate presented is the transaction price entered into the foreign exchange market.

On the other hand, if there is no interbank foreign exchange market between the two currencies, banks can calculate the exchange rate indirectly. For example, Korea’s interbank foreign exchange market has only won/dollar market and won/yuan market, so there is no interbank market for won and yen directly traded. Therefore, there is no won/yen exchange rate determined as a result of the interbank market transaction. In this case, the won/yen exchange rate is calculated using the ratio of the won/dollar exchange rate determined in the Seoul foreign exchange market and the yen/dollar exchange rate formed in the Tokyo or New York foreign exchange market. For example, if the won/dollar exchange rate against the U.S. dollar is 1,100 won and the yen/dollar exchange rate formed in the Tokyo foreign exchange market at the same time is 105 yen, we can obtain the won/yen exchange rate at 1,047.6 won (=1,100/105). The exchange rate of the euro or other currencies against the 12th won is also determined in this way, called the arbitrage rate.

The exchange rate fluctuates from time to time due to short- and long-term factors.

The exchange rate fluctuates from time to time under various factors, such as the economic conditions of individual countries or global environmental changes. More directly, we can determine the exchange rate in real-time based on the asking price and trading results of foreign exchange dealers in the interbank foreign exchange market, determining the exchange rate by various economic or non-.

Various factors that cause exchange rate fluctuations can be classified as domestic and global factors and can be classified into mid-to-long-term and short-term factors depending on their characteristics. For example, if a country loses currency value due to deteriorating basic economic conditions such as worsening international balance, it can be said that the exchange rate changes due to domestic factors. There are also long-term factors such as changes in currency purchasing power, but there are also many short-term factors such as changes in investors’ risk preferences and expectations.

To reasonably predict exchange rates, it is important to understand the individual factors that affect them. In fact, the foreign exchange market is always mixed with the rising and falling factors of the exchange rate, and the long-term and short-term factors are also complicated. Besides, each country has a different impact on the exchange rate of certain factors, and in one country, the impact varies from time to time. Besides, if uncertainty in the international financial market increases, foreign exchange trading by participants in the foreign exchange market may be concentrated in a certain direction; therefore, it is imperative to understand various exchange rate fluctuations systematically and comprehensively analyse them based on the economic conditions of each country.

Summary

The foreign exchange market is a market in which trading occurs between the two currencies and can be classified as an interbank market and a customer market. The interbank market plays a pivotal role in the foreign exchange market. The global customer market has recently evolved rapidly due to the development of computing techniques and the participation of non-bank financial institutions. The volume of transactions is steadily increasing by type of foreign exchange transactions, mainly focusing on traditional foreign exchange transactions such as spot exchange, futures exchange, and foreign exchange swaps. The exchange rate can be defined as the exchange rate between the two currencies in the foreign exchange market, which is influenced by domestic and long-term factors and reflects currency-specific characteristics, so it is important to have a systematic understanding and comprehensive analysis.

 

 

20-100 Short Term Momentum Strategy

 

Those who prefer short-term trading expect all market reactions to occur immediately and are obsessed with currency pairs fluctuating every ten pips. They also want to secure profits within five minutes of entering the position, and if there is a loss, immediately clear the position. This type of trader prefers to make ten pips on ten trades rather than wait for a long time and earn 100 pips at a time.

The most appropriate strategy for these traders is the short-term momentum strategy. The 20-100 short-term momentum strategy can be used independently and used to select the optimal entry price even if a long-term strategy is used. There are three different indicators used in this strategy: 20 days EMA, 100 days SMA, and MACD.

The EMA on the 20th is the starting point of this trading strategy, and the reason why using EMA instead of SMA is that it places more weight on the recent movement of prices essential for fast momentum trading. 100-day SMA helps to identify broader trends, and MACD allows us to identify the intensity of the momentum and pre-filter low probability signals.

On the MACD histogram chart, the first EMA is set to 12, the second EMA is set to 26, and the signal EMA is set to default. All values use the closing price and begin trading within five candles after the MACD rebound.

 

 

TRADING METHOD

 

BUY

 

1. Find a currency pair with the price under 20-days EMA and above 100-days SMA. 

2. Stand-by for the exchange rate to cross both 20-days EMA and 100-days SMA. The MACD should have a positive value of at least five candles.

3. When it crosses, enter the buy position and set a stop order below the candle if the exchange rate moves under the moving average.

5. When the exchange rate rises to the targeted price, sell off half of the positions.

6. For another half, set the trailing stop at the price where the exchange rate is below 15 pips of the 20-days EMA.

 

SELL

 

 

1. Find a currency pair with a price above 20-days EMA and under 100-days SMA. 

2. Stand-by for the exchange rate to cross both 20-days EMA and 100-days SMA downward. The MACD should have a negative value of at least five candles.

3. When it crosses, enter the sell position and set a stop order above the candle if the exchange rate moves above the moving average.

5. When the exchange rate falls to the targeted price, clear half of the positions.

6. For another half, set the trailing stop at the price where the exchange rate is above 15 pips of the 20-days EMA.

 

Trading Strategies for News Announcements

 

One of the most popular ways in FX trading is to trade when news is released. It is intriguing to many people as it has quick results for traders. Traders will feel their hearts bumping every moment while watching the position details before the news is released, and they will feel joy or disappointment at the results as soon as the news is released.

Traders who want to win in a short period of the time prefer this trading technique. The news trading strategy is based on the idea that when the actual value of economic indicators differs significantly from expectations, the market reacts immediately, resulting in a trend break. There are various news trading techniques, but traders can suffer huge losses if they are misused.

 

What Are The New Trading Strategies?

 

1. Entering the market before indicators are published!

 

• The most significant advantage of the No. 1 strategy is that it has a high risk-to-profit potential.
• The spread expansion phenomenon is usually ahead of the announcement of economic indicators.
• Traders who enter the market in advance without waiting for about five minutes catch the phenomenon as an opportunity.

2. Entering the market after indicators are published!

 

• Once economic indicators are published, they can lead to drastic changes in prices and realise significant returns.
• If the opposite indicators are published, traders can minimise the loss by using stop orders.

• In other words, if the prediction is correct, make a profit and if wrong, clear the position immediately.

   

3. Mix the before and the after publishment!

 

• Using both methods can reduce the risks but can not ensure that the trading is successful due to huge volatility.

 

Trading Method for Proactive Trading

 

 

BUY

 

 

1. Enter the buying position 20 minutes before the major news release. It helps you enter the position when the spread is relatively tight. Also, entering the position 20 minutes before the major news release enables you to focus on the news scheduled to be released.

2. Place a stop order 10 ~ 30 pips above the entering price within the range. Range means the last two hours of price variation and, if such a range is very narrow, the upper and lower movement of the price is applied. The purpose of this rule is to minimise risk.

3. If the price changes as predicted, close half of the position when it reaches the stop order level. This allows some profit to be obtained, eliminating the burden of loss on the remaining positions.

4. For the remaining positions, use the trailing stop or set the stop order three times the initial stop order level.

 

SELL

 

 

1. Enter the selling position 20 minutes before the major news release. It helps you enter the position when the spread is relatively tight.

2. Place a stop order 10 ~ 30 pips below the entering price within the range. Range means the last two hours of price variation and, if such a range is very narrow, the upper and lower movement of the price is applied. The purpose of this rule is to minimise risk.

3. If the price changes as predicted, close half of the position when it reaches the stop order level. This allows some profit to be obtained, eliminating the burden of loss on the remaining positions.

4. For the remaining positions, use the trailing stop or set the stop order three times the initial stop order level.

 

 

 

 

Trading Method for Reactive trading

 

 

BUY

 

1. Enter a buying position after 5 minutes of the major news release. It is possible to determine whether a sudden price reversal occurs immediately after the news release. If the index report differs significantly from the forecast, it may take more than 5 minutes to adjust the market.

2. Place a stop order above the entering price when news release. If the bid of a pair of currencies falls to the lowest point of the candle, it is interpreted that the market is not affected by the index release despite positive indicator results.

3. If the price increases by the stop order, close half of the position. Obtain a certain amount of profit in advance to reversal and explore additional profit opportunities.

4. Use the 20-day moving average for the remaining positions to enter the trailing stop or set the stop order.

 

SELL

 

 

1. After 5 minutes of the major news release, enter the selling position.

2. Place a stop order below the selling price when news release.

3. If the price drops by the stop order price, close half of the position.

4. Use the 20-day moving average for the remaining positions to trailing stop or set the stop order.

Although reactive news trading does not require more prediction than Proactive news trading, this strategy may be burdensome for some traders due to its much wider stop-set distance. It may also take hours to reach the first target as prices move later than expected.

On the other hand, proactive news trading can easily reach its first target within five minutes of the announcement and settle half of its position when it reaches the expectations. Since then, even if the other half of the positions remain open for several hours, there is less risk of loss because the stop order is already set at the initial entry price.

Of course, both tradings has trapped. Therefore, using a combination of two strategies would be the best strategy. Although it would be difficult to predict the results of all economic indicators, some specific indicators would be predictable.

 

 

 

Proactive + Trade Method for Reactive Trading

 

 

 

BUY

 

1. Place buying order for half of the positions at least 20 minutes before the major news release.

2. Enter a stop order in the range of 10 ~ 30 pips below the entry line.

3. If the direction of the market is consistent after the economic indicators are released, enter the other half of the positions five minutes after the announcement.

4. Set the take profit order 45pips above the second entry price.

5. Half of the position will be liquidated if the position reaches the targeted price.

6. For the other half of the position, use a simple 20-day average to set up a trailing order.

 

SELL

 

 

1. Place selling order for half of the positions at least 20 minutes before the major news release.

2. Enter a stop order in the range of 10 ~ 30 pips above the entry line.

3. If the direction of the market is consistent after the economic indicators are released, enter the other half of the positions five minutes after the announcement.

4. Set the take profit order 45pips below the second entry price.

5. Half of the position will be liquidated if the position reaches the targeted price.

6. For the other half of the position, use a simple 20-day average to set up a trailing order.

 

 

What is a Perfect Order Strategy?

 

It is a strategy that refers to the moving averages for different periods arranges in sequential order. In the upward trend curve, the perfect order means that the 10 SMA line is higher than the 20th SMA, and the 20 SMA is higher than the 50 SMA line. In the downward trend curve, the 200-day SMA should be at the most elevated position.

In general, the fact that the moving average line is in a sequential order suggests that the intensity of the trend is vigorous. It indicates that the momentum is in the same direction as the trend and means that the moving average line acts as a support line.

In this strategy, it is tough to select the time of entry and liquidation. Perfect order does not occur frequently, but the basic premise of this strategy is to seize the opportunity when the perfect order first occurs or fails.

 

 

How to Use the Perfect Order Strategy?

 

This strategy has the advantage of being able to capture opportunities at the beginning of the trend.

1. Observe the moving average lines of the currency pair if there is the perfect order phenomenon.

2. Observe that ADX is on a rising trend, indicating at least 20 or more.

3. After the perfect order was formed for the first time, enter the positions separately.

4. Clear the position when the perfect order breaks.

 

A channel means price moves between the resistance and the support line. Channel trading is a strategy that buys at the bottom and sells at the top of the channel. This strategy works well when the exchange rate tends to be strong in the narrow box market without showing a long transverse trend.

When major economic news is announced in the market, the channel market tends to convert into the trend market. Therefore, traders should be interested in major economic indicators and watch the market closely. The channel forms before the major U.S. economic indicators are recited. When the price is moving at the top of the channel, it is likely to breakthrough.

Draw a trend line, then draw a line parallel to the trend line when the channel is confirmed. If the channel is clear, in most cases, the price moves within two channel lines. Next, check which side of the channel range (upper or lower) the price is located. If the price close to the top of the channel, you can expect an upward breakthrough and a downward breakthrough if it is at the bottom. These strategies may be beneficial before releasing major economic indicators or before the opening of major financial markets.

 

Basic Rules!

 

1. Figure out the channel of the currency pair through the daily chart that moves in a narrow range!

2. When a currency pair breaks through the top of the channel, place a buying order!

3. Place a stop-loss order just below the top of the channel!

4. If the exchange rate proceeds in a profit direction as expected, use the trailing stop!

 

Trend Breakthrough Strategy

Breakout refers to a price that rises above the resistance line or falls below the support line. It is not easy to determine whether prices can break through resistance or support lines and maintain a stable trend. Trend breakthrough strategies pose many risks. False trend breakthrough signals are frequently seen, in which resistance lines, support lines are often tested once, twice, or even three times to attempt to break through the price.

As a result of this phenomenon, there are many reverse trend traders in the market. This is a strategy to earn profits when the trend breakthrough fails. If the trend breakthrough does not continue, and the phenomenon of returning to its original position occurs, there is a possibility of significant losses because the intensity is powerful and long-lasting. Therefore, traders will have to learn the ability to screen false trends for successful trading. This strategy finds spots in the trend through the daily chart and selects entry points through the time chart.

 

TRADING METHOD

 

BUY

 

1. When 14-days ADX is less than 35 and ADX is getting smaller, it signals that the trend is weakening.

2. Wait until the currency pair is at least 15 pips below its previous low.

3. Place a buy order on top of the previous day’s high by 15 pips.

4. When a buy order is executed, place a stop order within 30 pips of the entry price.

5. Clear the position when the price reaches 60 pips of the profit.

 

SELL

 

 

1. When 14-days ADX is less than 35 and ADX is getting smaller, it signals that the trend is weakening.

2. Wait until the currency pair is at least 15 pips above its previous high.

3. Place a sell order below the previous day’s low by 15 pips.

4. When a sell order is executed, place a stop order within 30 pips of the entry price.

5. Clear the position when the price reaches 60 pips of the profit.

 

• There should be no major economic indicators scheduled to be released that could trigger unexpected changes in the market.
• For example, the price could fluctuate from a steady market just before the announcement of the number of non-agricultural workers in the United States.
• Also, the smaller the currency pair’s volatility and the narrower the range, the more appropriate it is to use this strategy.

 

 

 

Inside Day Trend Breakthrough Strategy

 

Inside Day means when a currency pair moves between the range of changes in the previous day, the high and low points of the last day. The longer the inside day, the more likely volatility will increase, or a trend will break out.

Using the daily chart is the optimal condition for this strategy, but utilising charts with more extended time zones can identify opportunities for trend breakthroughs more clearly. The important thing is not being misled by the wrong breakthrough signal and finding a valid breakthrough signal.

Traders using the daily chart can detect a trend break for a particular pair of currencies before releasing critical economic indicators. This strategy is common for most call pairs, but sometimes it can send the wrong signal for call pairs such as EUR/GBP, USD/CAD, EUR/CHF, and AUD/CAD.

 

TRADING METHOD

 

BUY

 

1. Look for a currency pair that lasts at least two days for Inside Day.

2. Place a buy pre-order on top of the previous day’s high of 10 pips on the currency pair.

3. When there is a double return, liquidate half of the position to take profit. Set a trailing stop according to the preferred method for another half of your fund.

4. If it is a false signal, place a stop order of 10 pips above the Inside Day low.

 

SELL

 

1. Look for a currency pair that lasts at least two days for Inside Day.

2. Place a sell pre-order below the previous day’s low of 10 pips on the currency pair.

3. When there is a double return, liquidate half of the position to take profit. Set a trailing stop according to the preferred method for another half of your fund.

4. If it is a false signal, place a stop order of 10 pips below the Inside Day high.

 

 

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.

 

Different Time Zone Analysis

 

Time zone selection is essential for successful day trading. Multiple time frame analysis is necessary to prevent missing the market’s significant flow. The most common form of time zone analysis is determining the price to enter through the hourly chart after identifying the overall trend through the day chart. This can prevent multiple risks of loss by first identifying the general trend and making decisions.

The trend-following trading strategy is one of the methods that global hedge funds use a lot. Meanwhile, many traders also prefer to range selling since they can earn a large profit when it is very volatile! Buy low and sell high strategies in the range market are straightforward, but traders need to be more aware of the market environment in which they participate.

 

Use Double Zero Branches

 

It is impossible to identify all support and resistance lines during day trading and to earn profit at all points. Therefore, for successful day trading, understanding at which price to enter a position is essential. Psychologically points such as Double Zero OR Round Numbers help identify these factors.

Double Zero means that the last two decimal places end in zero, such as 110.00 in USD/JPY. If the currency pair’s support and resistance lines are displayed as double-zero, it is more meaningful than other lines. It is not difficult to use this strategy, but traders who want to use it should be well aware of large banks and market participants’ psychology.

The reason why this strategy is working is simple. Large banks are in a very favourable position compared to other market participants because they handle large quantities of orders through conditional orders. Still, they are also aware of the impact these conditional orders will have on the market. Dealers often use this information to operate short-term positions through their personal accounts.

Most market participants put conditional order at the same or almost the same price level. Usually, traders take profit at the round numbers and set stop & limit orders above or below the numbers. Plus, since the foreign exchange market is a 24-hour global market, traders use stop and limit orders more than other markets.

Large banks are targeting the price range where these positions are concentrated through conditional bulk order flows. The strategy of focusing on Double Zero allows traders to be in the same direction as the market movers.

 

TRADING METHOD

 

BUY

 

1. Select a price range that is significantly below the 20-day moving average in the 10-minute or 15-minute chart.

2. Select a round figure price and place a buy order 10 pips below the selected price range.

3. If the market flow moves in the opposite direction from the entry position, place the stop order below the entry price of 20 pips.

4. When there is a double return, liquidate half of the position to take profit. Set a trailing stop according to the preferred method for another half of your fund.

 

SELL

 

 

1. Select a price range that is significantly below the 20-day moving average in the 10-minute or 15-minute chart.

2. Select a round figure price and place a sell order of 10 pips above the selected price range.

3. If the market flow moves in the opposite direction from the entry position, place the stop order above the entry price of 20 pips.

4. When there is a double return, liquidate half of the position to take profit. Set a trailing stop according to the preferred method for another half of your fund.

 

 

Best Criteria for Strategy

 

1. This strategy’s optimal conditions are most valid when no major economic indicators are published.

2. This strategy works well for heterogeneous currency and commodity currencies that move within a narrow range of migration, low volatility markets, and large traders in situations where stop orders are very tight.

3. This strategy is essential when major technical indicators are shown as estimates because they are a point of great psychological significance. If the price is close to the resistance/support level, moving average, Fibonacci level, and Bollinger band, the probability of success tend to increase.