Forex or currency market is a 24 hrs market - it is different from other markets like: commodity, stock and debt. Here the traders participate from different countries during different timings.
Besides, the market volumes also show big variations, which leads to bigger moves which may be in tandem with the expectations of the traders or against. This market follow data release time, news and rumors like other markets but the moves are basically USD weakening or gaining moves. Besides other stretched moves will also be seen when the volatility happens in currency crosses.
There are 3 sessions the market show active moves, namely Japanese (00:30-07:30 GMT), European (08:00-14:00 GMT) and US sessions (14:30-21:30 GMT). In between sessions there are gap times where in false moves will be seen prior to the sessions. There is shift in sessions during day light saving timings.
USD is considered as the main major and EURO, GBP, CHF and YEN are considered as other majors. They are traded against USD and are called major pairs – EURO/USD, GBP/USD, USD/CHF and USD/YEN.
CAD and AUD are called commodity pairs as their moves are suppose to be dependent on demand and supply of commodity market. Other majors are traded against each other also and are called crosses – EURO/GBP, EURO/CHF, GBP/CHF (European crosses) and EURO/YEN, GBP/YEN and CHF/YEN (Yen crosses).
The rates are derived ratios of the pairs and are given up to the 4th decimals. E.g. EURO/USD when shown as 1.3020 – it means for 1 EURO 1.3020 USD will be equivalent. This ratio keeps changing in the 4th decimal level and is called pip. When a position is taken in the market – say 1 lot in standard forex account means $100,000 position and the used margin to be provided is $500 – this is called 1:200 leverage.
Planning forex day trading
The currency pairs normally make volatiles moves. To decide on the entry and exit we need to watch the market for 30 min from the start of any session and if it is near low and not cut the low for more than 30 min we can take a buy position and if seen near high we can take sell position with 30 pips hedging order or stop. Hedging refers to taking the opposite position in the same pair without off setting the original position.
Once the position makes profit of 30 pips then remove the hedging order and keep stop at entry to eliminate the risk of loss. Then change the stop status to trailing stop maintaining 30 pips from market or manually trail the stop.
Keep 75 pips limit for the market to close the position either with limit or the trailing stop to protect profit. In case the hedge order is filled, watch the market for 30 min and if the hedging makes loss, then understand it was filled during stop hunt move of the market and cut the hedging position with a small loss and keep another hedging order 30 pips away from the market and trail to the original hedged level when the market moves in your favor – it is a trading strategy to limit the risk in any market condition.
Basic trading rules
1. Take positions only for less than 10% of the equity to avoid over trading and margin call.
2. Keep away greed and fear and trade at ease with the view that market means swings and it keeps giving good trading opportunities
3. Never chase and take positions – buy during quick rise or sell during quick fall, they are trap moves the market make before the reversals.
4. Limit the trades to the time available for trading- never market it stressful- because we come to the market with the objective to earn and improve the lifestyle.
5. Equity management in the earning process is very important rather than the imaginations of whether the market will rise or drop.
6. Use other analysts’ calls as tools for your market study- don’t depend on them as they can misguide at times of reversal moves.
7. Take very less positions at a time to minimize the risk and maximize the profit. Act like a professional - accept when the loss is minimal and maximize when the profit is good using trading strategies.
8. Visualize and plan well before hand how you handle the positions when the market moves in your favor or against. Don’t become stunned when the market moves against.
9. Try to read the market moves, its limitations and advantages to decide upon your trading.
10. Don’t become addict to trading, trade only when good opportunity is seen in the market.
About the author
Dr.S.Sivaraman is the head trader of I-knowindices.
