Good trading is strategic trading. There are odd times to trade but many traders have no idea of that. Part of strategic trading is knowing the best time to trade and when not to trade.
After you grow past the popular basics of forex trading and get to understand the ins and out of risk management and the conceptualization of strategies, you are likely to overlook one key thing. The issue of the best time to trade highly overlooked. Underrating such an important issue may not wholly cause a trader’s failure but it could reduce his profitability factor.
There isn’t really a right or wrong time to trade since the outcome of a trade is what we all look out for. That said, there are favorable and unfavorable times to enter trades; this is where, the best time to trade and when not to trade gains pertinence.
It is written in bold, that the odds of the market are stack against you even before you begin trading. For that matter, it is imperative that you trade at favorable times to increase your edge. Below, I’d give you an in-depth analysis of the favorable and unfavorable times.
When not to trade (Unfavorable times).
The first hour of market open;
Trading in the first hour of market open is a non-starter. Just because the market is open doesn’t mean you should enter a trade. Newbies are mostly caught in the web of trading as long as the market is open. I do not advocate trading in the first hour of market open because of abnormal spreads especially on Sundays.
At the time of the forex market open, liquidity drops drastically and that means only a small amount of money is exchanging hands. As you may already know, the spread is the fee you pay to your broker for giving you access to the world currency market. When trading activities fall, brokers increase spread to make up for the few number of market participants that are trading.
Every trade you enter is negative at the beginning because of spread. The higher the spread, the longer it may take you to experience profits on your trades. Major currency pairs usually come with lower spreads. If you have no issue with high spreads, you can always enter trades right on market open.
Trading on Mondays may not be favorable. Markets are unusually quiet on most Mondays. If you’ve been trading for a while, this would not be new to you and you might even have heard a couple of traders say; “do not trade on Mondays”.
The market uses quiet Mondays to determine the true direction for the week. As a matter of fact, most false breakouts occur on Mondays and that is the reason why some traders strictly do not bother themselves on Mondays.
But there are exceptions to the Monday rule. Some pairs may shockingly average a wide daily pip range even on Mondays especially when there are news events. Frankly though, no one has the foresight to see which Mondays would be action packed, so you would be good even if you avoid Monday trading.
However, there are some A+ setups that every experienced trader has, and if such occurs on a Monday, take it. As a personal trading rule, even if I would trade on a Monday, I need an A+ setup and I wouldn’t trade it until the first 8 or 12 hours of the market is past.
Trading on Fridays may also not be favorable. The exceptions here are scalpers and day traders. However, if you hold trades for more than a day, entering trades on Fridays may give you the regret of your trading career.
Logically, if most market directions are determined on Mondays why enter trades on Fridays and get stuck in trades. Also, trading activity goes on during the weekends when the retail market is closed. This means you are going to pay or earn the Saturday and Sunday swaps. It only makes a little sense when the swap would be earned.
The true trading demon that can make you regret your trading career is a weekend gap. Since trading activity continues quietly into the weekend any fundamental surprise would cause the market to move heavily during the weekend.
As a retail trader with a retail broker the market move would price in on your chart as a gap. You would get away with it if the market gaps in favor of your position. If it gaps against your position and it is wide there is a possibility to lose more than half of your account or all.
Mind you, many weekend gaps are wide. Trading on Fridays and Mondays are not a non-starter like trading in the first hour of market open; but trade on those days with care.
Also, trading in the last hour of market open within the course of the trading week is not advisable, if the swap will be paid.
Being sure about the outcome of an economic event.
Predicting the fundamental news to trade it is a no-no. If you are familiar with my view on fundamental analysis, you would stay away from the news most of the time because it is highly unpredictable. You don’t predict fundamental outcomes unless you’re an insider. You can read extensively on why trading the news isn’t a theory I recommend here.
The best time to trade.
Reverse every aspect of when not to trade and you will get the best time to trade :D. There’s also a lot to learn in this aspect as well.
After the first hour of market open, the participants get involved a bunch and liquidity sets in, so spreads go back to the acceptable. Trading after the first hour of market open means you do not pay too much in spread and it won’t take too long to experience profit on a good trade. However, spreads are super tight when two major financial markets overlap. Visit forex market hours to see market open, close and overlap sessions in your particular time zone.
Tuesday, Wednesday and Thursday.
On Tuesdays, Wednesdays and Thursdays, there’s a high probability that market participants have determined a direction so there’s volatility and liquidity at play and the market averages wide daily pip ranges. Some Fridays also benefit from good market movements. Some also tend to be quieter as Mondays since it is the last trading day for retail.
It is very unusual to notice quiet markets on Tuesdays, Wednesdays and Thursdays.
After the rumors come the facts.
Trade after the economic news announcement. By this time, you would have noticed that the news was positive or negative to inform good trading decisions. Sometimes the market would move without you if you wait, but it is better than risking it.
Also, big news announcements effect on the market may last long term after the outcome so it would help you in the long run than trying to predict it beforehand.
Finalizing this lesson, if you can implement this concept of the best time to trade and when not to trade in your career, it would be worth your while. Trade only or mostly at favorable times, and watch your performance improve; probably at a higher than usual pace. In the comment box below, you are welcome to share your thoughts in the form of inputs or questions.
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