2Bull Forex Blog

Does it matter when I trade?

Traders spend a lot of time and money trying to figure out HOW to trade.They expend an enormous amount of their resources on systems,methodologies, techniques, and strategies that ultimately will give them only half of what they need. The secret the professionals don’t want you to know, however, is WHEN to trade. After all, they are on the winning side of every one of your losing trades.

Even though the Forex is open twenty-four hours a day, there are times when the market for a given currency pair is highly active, other times when it is moderately active, and times when there is no activity at all.

While you can make money whether the market is moving up or down, it’s extremely difficult to make a profit when the market is moving sideways.

And since the market for a particular currency may spend 60% to 75% of its time moving sideways, it is very important to know WHEN the trending activity is most likely to occur. It’s also easy to enter the market at the tail end of a trend and not know, except in hindsight, that the end was so near. After all, the indicators were telling you the trend was still going strong—so if you don’t know that this particular pair makes seven-bar moves, you go ahead and enter on the sixth bar of the trend. Two bars later, your trade is heading south in a hurry. It’s critical to know how many bars a trend is likely to last before there is a retracement or consolidation period, given the day of the week and the hour of the day the trend first began.

Exiting too late is another common experience many traders share. At 6 AM, you place a contingent (IF THEN) order with your entry price and your stop loss, and head off to work. At noon, you check your trade and find out that by 11 AM the market had moved 90 pips in your favor. But in the last hour the price dropped 65 pips. The next time you’ll be able to check your trade is after work, so rather than tighten your stop loss to break-even in the hopes of a rally, you exit the trade at market for a 25-pip gain. That’s certainly better than nothing, but if you had known how many pips this currency pair was likely to move given the day of the week and hour of day the trend began, you could have set a target to exit with an 85-pip profit. Thus, if you know for a given currency pair the best days and hours to trade, the likely number of price bars the move will cover, and the number of pips this pair will most probably move, you would have to agree that you would possess some very powerful knowledge.

What does a typical 24-hour Forex trading day look like?Before we get into WHEN to trade, let’s take a closer look at a typical day in Forex time. This information is generally available on the Internet, but has been compiled here for your convenience.

Technically, the Forex operates on a global time scale, twenty-four hours a day, seven days a week, with no start or end time. Given that no one stays awake 24 hours a day and that very little trading takes place on theweekend (from Friday at 13:00 PM US EST to Sunday at 17:00 PM US EST), the Forex trading day naturally breaks itself down into three major trading sessions:

1. The Australasian session (New Zealand, Australia, and Tokyo)
2. The London session, and
3. The New York session.

It’s interesting that these sessions just happen to coincide with the opening and closing of their associated stock markets.The first thing you probably noticed is that from the New Zealand open to the New York close, the entire 24-hour day is covered. What’s more, you can see that the Australasian session has three stock markets open at the same time, with the last hour of the Australian and Tokyo sessions (3:00-4:00 AM US EST) coinciding with the opening hour of the London session.Furthermore, the London and New York markets share the hours between 8:00AM US EST and 13:00 US EST. In other words, from 19:00 US EST to 4:00 US EST and from 8:00 AM US EST to 13:00 PM US EST, two or more markets lap. In fact, the areas highlighted in yellow represent the Forex market’s busiest fourteen hours. This is because when two or more markets share the same hours, there are more traders to drive volume and volatility up.

What you have just seen is the general foundation for WHEN to trade.However, as important as this information is, you should know that each currency pair has its own unique set of “habits” that make up the key to its individual WHEN. And some of those habits run counter to the chart above. Without that specific knowledge, you’re still trading blindfolded.

This is probably a good place to share a story about Robert. He does pretty well in real estate, but wants to get into trading full-time. He’s busy with his current job, and even though he works his own schedule, he doesn’t have a regular time to sit in front of a computer for several hours. In spite of this, he has invested a good deal of cash in all kinds of trading systems. More than once, he has lost most of the money in his account, but he keeps coming back. At some point, he came across the information outlined in the sessions chart above. In his haste to make a success of himself as a trader, Robert took a one-size-fits-all approach as he applied this newfound knowledge to his trades. He followed a simple rule: if his system gave him a solid signal, as long as two or more markets were open at the same time, he would enter the trade. And guess what? A remarkable thing happened! He started hitting a few winning trades now and then, and he’s now able to stay at right around break-even. While this may be a great improvement, he is still far from his goal. He’s trading with a shotgun, armed with only a part of the knowledge he needs, and what he doesn’t know about WHEN is robbing him of his profits. If I’m trading the 4-hour bars, when are trends most likely to occur within the Forex trading day?

What moves currency prices? – Sounds an easy enough question but most currency traders have no idea and that’s why 95% lose. Let’s look at the equation for market movement and see how and why prices really move.

A simple equation for currency market movement is:

Supply and Demand Fundamentals + Investor Perception = Price

SIMPLE BUT …

This equation is simple but its also deceptive – lets look at the equation in more detail.

Prices move in line with the long term fundamentals and that’s why the longer term trends last for months or years because they reflect the health of the economy – the fundamentals.

The facts are there for us all to see but we all see the facts in our own way not logically or as group, but blurred by our greed, fear and opinions which we hold.

If you try and trade news stories you will lose as what may seem obvious to trade is already old news and discounted in the market price. In today’s world of instant communications the facts are available in a split second at the click of a mouse.

Will Rogers once said ” I only believe what I read in the papers” he was joking of course but its surprising how many people trade they see on the net TV or radio and are surprised when they lose!

If you could make money by trading the news a lot of traders would be rich and their not they lose.

It’s a common investment fact that markets collapse when the fundamentals are most bullish and rally when their most bearish.

This is human psychology at work where prices have been pushed to far away from the fundamentals by the emotions of greed and fear.

You therefore need to see both sides of the equation we covered earlier.

This is where forex charts can help.

If you trade off forex charts you see the reality of price and only have to follow and act upon it.

The fundamentals.

Forex technical analysis simply assumes that they will show up instantly in price action so you don’t need to guess their impact – you can see it.

Investor Psychology

Forex charts also tell you how humans perceive the fundamentals as well.

All short term price spikes are due to human psychology and they don’t last long and are quick and easy to spot on a forex chart.

While forex traders make mistakes about news and trading it, they also don’t see the limitations of technical analysis and its strengths.

They assume that as human nature is constant, chart patterns can be predicted in advance with scientific accuracy – They can’t.

If you try and predict with forex charts you will lose your equity quickly – on the other hand, if you get confirmation and trade with the odds you will win.

What is confirmation?

This means following moves AFTER they have occurred. Sure, you miss the start of the move but you can’t catch that anyway, so don’t try.

If you get just get a major chunk of the trend (60 – 70%) you will build big gains over the longer term.

The forex markets are hard to trade but you can trade them and the rewards are massive for traders who trade them correctly.

If you use forex charts and simply follow and act on the confirmation of price changes without listening to opinions or trying to predict, then the equation we have looked at can make you a lot of money.

It sounds simple and in essence it is, but you need to get the right forex education, find the best technical tools and trade when high odds trades present themselves with confidence and discipline.

If you do the above you are well on your way to currency trading success and making big FX profits.

Forex day trading simply doesn’t work and traders get wiped out yet, it is very popular and this popularity has nothing to do with profits and everything to do with curve fitting so lets look at.

Curve fitting is the bending of parameters of a system in hindsight to fit the data.

This is done by some traders who don’t know what their doing and by forex day trading vendors who know exactly what their doing.

A trader I know compared curve fitting to – shooting blindly as a barn door, then afterwards drawing a chalk circle around everyone, to make it look like a bulls-eye!

Many traders test their day trading system over a period of data and they cant get a profit with the parameters or inputs they are using so they simply bend the system to fit – by optimizing the system rules. Of course, no period of data replicates itself exactly in the future and the optimized system collapses.

A curve fitted system normally has a lot of rules or parameters and unique rules and parameters for different market conditions or currencies and if it does – it will break in real time trading.

Forex traders don’t just do this in day trading they do it in all areas – but its very common in day trading.

Vendors on the other hand, know that forex day trading is a good story and they therefore want to make an attractive track record to sell their system – so they optimize it to show big profits and low risk. If you look at some of the track records produced you know they can’t be real – or not for a few hundred bucks!

All they do is present the track record and then put a disclaimer on them, to cover themselves and this the disclaimer you will see:

“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-over compensated 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 show”.

So you can make up whatever you wish as you know the closing prices. Of course, in reality these track records never make gains in real time, as the vendor does not have the advantage of the closing prices and being able to manipulate the track record.

Investors who buy these forex day trading systems from vendors, don’t stop to think that these track records are not worth the paper their written on, trade them and lose.

Vendors make a lot of money from day trading by selling systems NOT trading the markets.

The buyer takes the loss and the vendor makes a profit from the sale.

You will never find a real time track record of profits (or if you do let me know) because day trading simply doesn’t work. Here’s why:

In daily time frames, all volatility is random and prices can and do go anywhere in a day. Support and resistance levels are meaningless and cannot be traded, you can’t get the odds in your favour and you will lose.

Don’t believe me?

Then try and find a real time track record and you wont get one.

Sure, those day trading track records look attractive – but keep in mind their almost certainly curve fitted, done in hindsight and will not repeat their profits in the real world.

Leonardo Fibonacci was an Italian mathematician, who lived in the 13th century and known for his world famous Fibonacci sequence, which many trader use to try and predict currency prices with greater accuracy. Let’s look at the Fibonacci number sequence and Forex trading.

The Fibonacci sequence was printed in the Liber Abaci, written by Leonardo Fibonacci in 1202. It introduced Hindu-Arabic numerals to replace Roman ones. The Fibonacci number sequence was devised to solve the following problem:

How many pairs of rabbits can be produced from one single pair, if each month each pair produces a new pair, which, from the second month, starts producing more rabbits?

The definition of the sequence is that it’s formed by a series of numbers where each number is the sum of the two preceding numbers; 1, 1, 2, 3, 5, 8, 13…

In forex trading what is important is – the Fibonacci ratios derived from this sequence of numbers, i.e. .236, .50, .382, .618, etc. These Fibonacci retracements many forex traders believe are tradable for profit.

The two Fibonacci percentage retracement levels considered the most critical are: 38.2% and 62.8%. Other important retracement ones are: 75%, 50%, and 33%.

So can the Fibonacci number sequence help you trade more successfully?

The answer is no.

In fact, its amazing that such a dumb theory is believed by so many traders, this is no disrespect to Leonardo Fibonacci who was a brilliant thinker, its just these levels have nothing to do with trading and the great man himself (were he alive today) would probably be bemused at the way his thinking has been hijacked by the far out investment community.

Many traders believe that Fibonacci levels are a natural law that re-occurs as human psychology is constant – but if you think about it, human nature is not predictable and NOT scientific.

Trading is an odds game.

Fibonacci traders are like the followers of Gann or Elliot, they all believe the market is scientific but if they were, we would all know the price in advance and there would be no market!

This is common sense to most people but not some traders, who constantly say it works when it doesn’t.

Sure, you can see the levels hold sometimes but pick any number you like and you will see that hold to sometimes!

If it’s scientific it should hold ALL the time, otherwise it’s NOT a scientific theory by definition – period.

Fibonacci numbers are a great story and vendors realize this and sell ridiculous systems based upon it, that don’t work. If you see one ask for the real time track record to prove this, you won’t get one.

You will get a simulated one done in hindsight but we can all do that – the problem with forex trading is you have to trade going forward not knowing the closing prices.

If you want to win at forex trading remember this:

There is no science involved and if anyone had found the secret of market movement they wouldn’t reveal it to you. OF COURSE Fibonacci numbers are available to all so why are the traders who use them not rich?

Well you already know the answer to that!

Forex trading is a game of odds, NOT certainties and there is no scientific formula or hocus pocus that makes them move on their own. They move due to what people do and how they see facts and humans are not predictable with scientific accuracy.

So leave the Fibonacci numbers to the dreamers and far out crowd and concentrate on a system that trades the odds.

Sure, you won’t win all the time, but if you know how to trade the odds you can make a lot of money.

Forex trading for novices can seem confusing so here I am going to give you a system you can learn in under an hour and immediately target 100% gains or more – its simple and it’s effective so let’s reveal it.

The first point to make is – although I write articles, I am a trader and have been for 5 years. I am not a self proclaimed expert, so here what I say as I walk the walk, rather than just talk the talk.

I have tried lots of ways of trading and this is the simplest method I use and probably one of the most effective.

I am going to call it Fundo-Tech trading, because that’s exactly what it is.

If you read much of the information on the net, you will hear lots of stories how you can predict currency prices with scientific accuracy, all for a few hundred bucks! Well, call me a sceptic (or a realist) but they don’t work and never will and if they did, people wouldn’t sell them to you; they would be to busy making money.

So what is Fundo-Tech trading?

Exactly what it sounds like, a blend of fundamentals and technical inputs. The first for defining strong currencies the second, for timing entry.

Currencies move to the long term fundamentals, we all know that but their hard to trade, as humans see the facts they’re there for all to see but you, me and millions of others, draw our own conclusions from what we see.

In simple terms we have this equation:

Fundamentals + Human Perception = Price direction.

That’s not too difficult to understand is it?

Now let’s take economies with strong currencies – this is the fundamental bit.

Currencies that rise tend to have good interest rate earnings, strong economies, and budget surpluses and export more than they import.

Let’s take the US dollar first – The American economy is swimming in debt (and so is the population) and the budget deficit is huge and finally, it has to import raw materials that are rising in price.

Now let’s take a strong currency – the Canadian dollar.

Canada has huge amounts of commodities including oil it sells, has a huge budget surplus and has good interest rate earnings.

The Canadian dollar therefore should rise against the US Dollar and it has.

In fact if you check out my other articles I stated this months ago and I made some great gains.

Now you may be saying – that sounds simple!

Well yes and no.

Picking the direction is easy, entering the trade with good risk reward is a different matter however this is not to complicated either, lets look at how to enter correctly and another great currency trading opportunity.

Resistance forms and simply means supply and demand are in equilibrium below the price and when prices break to a new high supply and demand are out of synch.

Notice here, we are looking to buy new highs NOT lows – this is called breakout trading and it’s a fact that most of the biggest moves come from new highs not lows so forget all the buy low sell high is a great way to trade its not.

A few weeks ago when we saw the Canadian dollar break important resistance – we bought it and enjoyed the ride!

Now let’s look at another opportunity shaping up right now and it involves buying the dollar and our victim is the Japanese Yen.

Why?

Because the yen has interest rates at just 0.5%, a sluggish economy and is a bigger importer of commodities than America.

Last week we saw the dollar consolidate above significant resistance at 117.00 and were targeting 119.00 and maybe as high as 130.00.

We will now just sit back and wait as we did with the Canadian dollar.

We have lined up the technical with the long term fundamentals and timed our entry as the dollar has broken up outside of a trading range. If were wrong, our stop is tight under the recently broken resistance which is now support.

Does this method sound simple?

Yes it is, but that doesn’t mean it doesn’t make money – it worked in the Canadian dollar and you follow the yen for yourself.

Currency trading is simpler than many people believe.

Currencies do reflect the fundamentals, you just have to careful of your timing but that’s easy enough -use support, resistance and a few momentum indicators to time your entry and you’re all set.

You don’t need to trade often either, these trades tend to last for weeks or months, we did well in the Canadian Dollar now lets see how this one goes.