Tuesday, April 5, 2011

Figure 7: When to Trade - P

The markets sleep when London and New York are off.

One of the best ways to validate a technical indicator is volume.  When
volume is strong, indicators tend to be more accurate.  Unfortunately,
there is no volume data available for the forex markets.  Using trading
ranges is the next best thing.
Having this data in hand, the trader can more carefully evaluate when to
trade.  Not only will technical indicators generally have more accuracy at
different points of the day, but there is both more profit potential and less
loss potential at other times of the day.
Consider a trade in EURUSD at 10 AM EST vs. one at 10 PM EST.  The
first has an average trading range of 30 pips, the second, 10 pips.  Entering
the market during the morning trade creates some interesting possibilities
– the market may go against you or with you, but you should be prepared
for a ride in either case.  On the other hand, if the market goes against you
10 pips at 10 PM, how concerned should you be?  Probably not as much as
if it was 4 AM.

For a more in-depth discussion of when to trade, including trend, days of
the week, and other metrics, register for your free trial at FX Engines.  All
FX Engines users receive our periodic Case Studies which highlight
automated trading strategies.
Anybody can trade based on technical indicators.  The novice, in
particular, ignores the importance of “when” as he makes trading choices.
The sophisticated investor is the one who uses timing to his advantage –
creating profit opportunities and limiting losses by observing the market
with more perspective.
HOW
Once an understanding of the external elements of trading is completed,
the hard work begins: the trader must understand his own mind.  The
external elements are easy – they are usually rational, factual, consistent,
and ordered.  The trader’s mind, however, is far from all of that.

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