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Forex day trading techniques by Dr.S.Sivaraman - topics:
- Forex market structure:I will explain the ways they can make money in spite of big volatility in the market using simple procedures,during the big trend reversal time in the market
- Market moves - expect the unexpected
- Intra -day volatility and swing trades
Forex market functions for 24 hrs, non-stop from Monday to Friday, as traders from different countries participate actively during their normal business working hours. It is humanly impossible to watch the market 24 hrs all 5 days non-stop in a week. So traders need to have certain basic understanding of the market and develop the sense to - watch the market frequently and do the trades at ease, without spoiling their health. Let the market be non-stop, but the market can be active when traders actively do day trading from different parts of the world. Please understand that the volume of traders participation and impulsive decisions determine the market moves.
If the forex traders wait to make commitments in taking position then the market waits – because the operators can make big moves in the market only when the traders have entered into the fray by taking positions. They do circular trades to maintain momentum in the market, but only when the traders commit by taking positions, the operators change the market sentiments and make the move against the expectations of the traders – an act against herd mentality.
Please view the situation of the market objectively. When, European Economic data release is weak then Euro drops by the data release..…sensible …then during US session the US Economic data also comes as weak or less than market expectation, then Euro rises…. But the real economic situation does not get improved in a few hours from European to US session. So the data release time is used for the market to become active and to show big swings and spikes as the interpretations and media hype on that situation induce the traders to go in their height of imagination as if the economy of that country is either going to collapse or grow big.
Besides, the fundamental analysts give lot of derivations and they don’t look back their calls and control their emotional derivations. Besides the technical analysts will start their big calls like Euro will rise to 1.40 and some strong technical people will draw it further up and say it will test 1.42…. then we all know what happened to the market during beginning of this year…. currently when Euro is around 1.20, similar calls of 1.15 and parity are the calls coming from the same analysts forgetting their past calls, we need to wait and see the height of their imaginations…………getting such info from various web sites and media, the day traders really become confused and frightened. Can the market make such big moves of 500- 1000 pips in a day?
So day traders need to understand the market limitations for the day and set the trades accordingly. The market makes swings, if you follow carefully in a day, in different pairs…the understanding can come easily – around 150 –200 pips moves are the daily potencies.
So even if you take position at the wrong side, still the loss can be to the tune of 150 pips in a worst scenario. If the day trader decides to take sell near the high set for the day or buy near the low set for the day, then the wrong side position will limit the loss to only 75 pips.
E.g. On Friday (15 Jul, 2005) Euro high was 1.2135 and the initial low was 1.2083 and the closing level was 1.2034 and the final low for the day was 1.2024.Euro dropped. If any one had taken a sell position around 1.2135 would have closed with profit at different levels during drop. If a buy position was taken around 1.2083 – the low, the drop from there was only less than 75 pips (1.2083-1.2024 = 59 pips). In such a situation the day trader can simply stop out the position and should not imagine of 1.15 of Euro and short it emotionally at the lowest level for the day, aiming to earn the losses in no time. This emotional act of the day trader is the advantage for the operators to earn their money. Never try a trade of sell after the visible drop or buy after a visible rise unless you can read well the market potency for the next day. So let us now review the day trading potencies and possibilities.
Forex market structure: I will explain the ways the traders can make money in spite of big volatility in the market using simple procedures, during the big intra –day trend reversal time in the market.
- There are 3 days in 24 hrs market in different parts of world. …i.e. there are 3 sessions (active day time) in a day – Japanese, European and US sessions…. each session will be the day trading opportunity for the respective country traders…..Each session runs around 6:30 hrs as follows. Japanese session 00:30 – 07:00 GMT, European session 07:30 – 13:00 GMT and US session 13:30 –20:30 GMT, based on their geographical positions. In between time of the sessions is called Gap time. If you watch the market during these gap times there will be big swings.
Keep in mind that the operators make the market active during start and end of the sessions and the gap time. Rest of the time (with in the sessions), the moves will be mostly swings between the high and low or from low to high. Always aim to take positions when the market is active to grab the swing trade profits…that will reduce the waiting time to book profit. There is no need to burn the candle and wait over night awake and stress your body and mind…. fatigue condition will lead only to distress trading. How long you trade is not greatness, how smart you trade and earn is important.
Operators don’t make one-sided moves for more than 2 sessions; they have the task of maintaining volatility of the market and earn for them.
So aim to set your convenient day trading time and only focus to do day trading without bothering about the big calls, then trading becomes easier. There are 3 major things to be considered before commencing trading – namely the time available for day trading, the nature of the trading platform (with or without hedging) and the equity base.
The market has full of trading opportunity and we realize that after the moves. But we need to visualize that before the moves, to earn.
Keep in mind, always the quick moves are false moves. …When ever you see quick moves like spikes, wait for the full move and the high or low is not cut for more than 30 min to 2 hrs then take sell near the new high or buy near the new low to capture the swing trade profit of 30-50 pips during session change……….if you understand that the operators are big traders and they also need to book profits, their intentions will become visible to you, and you will be able to sell when they sell and buy when they buy and book profit along with them.
They drop the market big to buy and raise the market big to sell – hence quick moves are false moves. What is apparently visible in the market is not true – your have to control your emotions and use the conditions as your objective day trading opportunities, trading becomes focused and easier that way.
Market moves – the market can only make up or down moves in a day. Expect the unexpected.
If it appears that there could be a fall in Euro, then wait to take a long position in that when the low is not cut for more than 30 min, the profit will be seen in your trade. Still to ascertain the profit you need to use trailing stop once the position makes profit. When the new position makes initial small loss keep hedging order instead of stop. This way you will be able to limit the risk and also will not be nervous of stop being hit. There are platforms where you can use the entry stop order in advance (advance hedging order) instead of stop and that could be trailed to entry till the position makes 20-30 pips profit. When such a possibility is available why to try open risk platforms trying to hit your stops at ease. Many times some platform providers take advantage of the quick market moves and hit your stops unassumingly. We need to understand that besides the operators some of our own platform providers make their own moves quickly and grab the money from their clients and also call them selves as best market makers.
The possible moves in a session could be from high to low, or from low to high or subdued moves in the middle range between the days high and low in a session.
So if you are active day trader during Japanese session – watch the market where it stays-near high or low. If the low is not cut for more 30 min take long position and trail stop with high as limit, or if the high is not cut when the market is near high for more than 30 min, take a short position and trail stop and use the low as the limit – the swing trade profit will be seen.
If you are active during European session, then read the nature of moves the market has made during previous session. There can be 2 possible further moves…. the market can follow the same trend or make intra day reversal. If you watch till 08:00 GMT 30 min from the start, you can easily find that, either it is trying to cut the high or low set during previous session. If it cuts the high and comes down below the earlier high in less than 30 min, understand that it was a upward stop hunt before the move down, vice versa for the other way move. This will give the clarity to you by experience whether the market could move up or come down from there. I cannot explain more than this here and the details are given in my professional trading training.
Intra -day volatility and swing trades
Day traders have to limit their greed more than the fear. Should not suddenly think of position trade when the going is good, that will mental block the intention to grab the day trading profit from the market. Position trading strategies are different from day trading. So if the equity is small and the trading is part time work during off office hours, then try to close the positions when you are available. Don’t hold the position and attend to your office work, that will act as distraction and you will not be either focused to your work or trading.
Try to gain time to watch the market once in 30-45 min. That will give more insight than watching the chart or any other analyses. Because the charts display only the past levels seen in your absence and not the market volume and the potency of intra-day trend reversals. Watching the chart of the earlier session or day develops the bullish or bearish feel in the mind and the potency for intra-day trend reversal is not visualized. So if you have the scope to view the live market quote page given by various web sites – you could see the high and low set for the day and the panic trending move for the day starts when the high or low are cut. That gives big technical trade opportunity during US session – i.e. buy above the earlier high or sell below the earlier low and quickly grab 30 –75 pips profit.
In any case when the full potency for the day is reached in pips range avoid taking positions. That will only make you to hold the position to the next day.
So when you decide to do day trading, try to close the positions with in the sessions. If you wish to take position during Gap time, then try to close the position in the following session. if you try to hold the position for more than one session, then try to understand that the market will make a big volatile move for the 3rd session and then only continue the trend….so to get best results in day trading try to book profit with in a session or two if profit is seen. After taking the position, if profit is not seen for 2 hrs then close and take reverse of the position to earn more than the cut loss of the earlier position, to earn net profit for the day.
Develop your own intra-day trading strategy based on the input and you will find more confident trading style developing in you. When you blindly depend on others market calls, you develop uncertainty based on the probability. If you learn to develop your own judging ability and use others views and concepts as inputs for your reasoning ability, you will find fearless trading coming in to your practice.
Always expect the unexpected during session change to re-enter in the market. Do either way trades only if your platform provides hedging in the same pair ... do not use 2 accounts for hedging…. that will close one account during adverse moves of the market. Hedging in different pairs can be used for day trading, provided, you choose the right contrarian pairs making almost similar pip changes.
Like EURO/USD can be hedged with USD/CHF and GBP/USD can be hedged with USD/YEN. Avoid using crosses for hedging that will lead to more loss as more one sided moves against the swings in the majors which will mismatch the scope of hedging.
About the author
Dr.S.Sivaraman. |
