Tag: Asia Session

Categories
Forex Basic Strategies

Heard Of The ‘Good Morning Asia’ Forex Trading Strategy?

Introduction

Introduction

Introduction

In the previous article, we discussed a strategy that was in the European session. However, there are a fair number of traders who prefer the U.S. session as they feel the market tends to be more exciting and thrilling. These traders consider the Asian session to be boring and quiet most of the time.

Many part-time retail traders based in the United States and Europe miss out on opportunities in European and U.S. sessions because of work and other business commitments. The only time they are left with happens to fall in the apparent boring and quiet Asian session. Therefore, it becomes necessary to come out with a strategy that is exclusively meant for the Asia session.

The strategy we will be going to discuss today is suitable for trading during the early-morning Asian hours. This time period has numerous opportunities for traders in different time zones across the world, whether they are part-time or full-time traders. We hope that the strategy will greet everyone like the bright morning sun.

Time Frame

The good-morning Asia strategy works well on the 4-hour time frame. This means each candle represents one day of price movement.

Indicators

This strategy is based on pure price action, and hence no indicators will be used during the process.

Currency Pairs

This strategy applies only to the AUD/JPY currency pair.

Strategy Concept

Opening hours of the Asian market begin a couple of hours after the U.S. market closes. The Asian market direction tends to take its cue from the previous day’s movement during the U.S. session because the U.S. market is the largest economy of the world, and most of the institutional banks are located in the U.S.

It is observed that when the U.S. market closes with the bullish sentiment, the Asian market usually starts the day bullish. If the U.S. market closes with the bearish sentiment, the Asian market remains bearish throughout the day.

During the early morning Asian hours, the best currency pair to take advantage of this phenomenon is none other than the AUD/JPY, as the Japanese Yen and the Australian dollar are the most active currency during the Asian session.

Looking at the price action, we take an entry right after the U.S. market closes at 05:00 PM. The first requirement of the strategy is that we need a ‘range’ or a ‘channel’ before the U.S. market closes. Depending on the position of the price and where the candle closes before the U.S., we take an entry. There are many rules that we need to follow before we can use the strategy profitably.

Stop-loss is placed above or below the technical levels, which is the easiest part of the strategy. The risk-to-reward ratio for this strategy is anywhere between 1.5 to 2, which is quite good.

Trade Setup

For this strategy, the closing of the 4-hour candle corresponding to 5:00 PM New York time is crucial for the strategy. Here are the steps to execute the strategy.

Step 1

Firstly, we need to identify a ‘range’ or ‘channel’ on the chart of AUD/JPY. This becomes our trading region, where we will be carrying out all the trades. A ‘range’ or ‘channel’ is confirmed only if the price has reacted and reached the other end at least twice after touching the extremes.

We have considered an example of a trade where we will be applying the rules the strategy step by step. The below image shows the 4-hour time frame chart of the AUD/JPY pair, where we identified a ‘channel’ with multiple touches on either side.

Step 2

In this step, we need to pay close attention to the position of the price and the closing of the U.S. market. The most important part of the strategy is looking out for the price action taking place at the end of the range, which should be occurring at the close of the U.S. market. Depending on the signal we get from the market, we will take an appropriate currency pair position.

At the close (U.S.) if the price closes as a bullish candle from the support, we will enter for a ‘buy’ at the opening of the subsequent candle. If the price closes as a bearish candle from the resistance, we will enter for a ‘sell’ at the opening of the subsequent candle.

Step 3

In this step, we take an ‘entry’ with a suitable size and determine the stop-loss and take-profit for the trade. As mentioned earlier, we will enter for a ‘buy’ or ‘sell’ right after the U.S. market closes, and the next candle opens. This ensures that the risk to reward will be higher.

The stop-loss for the trade is placed a few pips below or above the key technical level of support or resistance. To increase the risk to reward ratio, we can also place it just above or below the previous candle. This would require some experience of using the strategy over a long time. The ‘take-profit’ is set at the other end of support or resistance. We can have a larger ‘take-profit’ if we are trading with the trend of the market. The ‘take-profit 1’ ensures that we lock in some profits if the trade goes against us.

Strategy Roundup

This strategy is suitable for traders with little time to trade. Furthermore, it does not require complex market analysis. It does have some strict rules which might reduce the creation of the trade setups. The ‘entry’ time of the trade is fixed at every morning. Since Japan and Australia are the first countries in Asia where markets open, there will be ample liquidity in the market that will allow traders to execute ‘long’ and ‘short’ positions very easily. All the best!

Categories
Forex Market

Advantages & Risks Involved With Volatility Trading In The Forex Market

Introduction
The forex market offers a lot of trading opportunities, but still, many traders find it difficult to make profits consistently. Emotions combined with undue risk and money management are

Introduction
The forex market offers a lot of trading opportunities, but still, many traders find it difficult to make profits consistently. Emotions combined with undue risk and money management are

Introduction

The forex market offers a lot of trading opportunities, but still, many traders find it difficult to make profits consistently. Emotions combined with undue risk and money management are often the main obstacles that new traders face.

In this article, we will discuss the hourly volatility in the forex market and the trading risks involved during these hours. Some traders trade the market based on its volatility. Few traders enjoy volatile markets, while others prefer trading in non-volatile conditions. So let’s get right into the topic.

The volatility of a major currency pair

Hourly volatility is relevant to short term forex traders but is not a significant factor for long term investors. The global trading sessions affect volatility within the 24 hours. A forex pair is typically most volatile when a major trading session opens, or two market sessions overlap with one another. For example, EUR/USD is the most volatile and active when London or New York is open because these markets are associated with the Euro and USD, respectively. The below figure depicts the volatility of EUR/USD in a day.

The average volatility of EUR/USD currency pair on a single day

The bar chart shown above represents the volatility of EUR/USD in a day. It depicts nothing but a candle with lower wick, body, and upper wick. One can see that during the Asia session, the price is not volatile. Whereas during the New York session, the price makes large movements shown by larger wick and body of the bar chart. Even without looking at candlestick charts on the trading platform, these bar charts are sufficient to decide at what time to trade during the day, which is much easier than analyzing candlestick charts.

Low volatile hours – Asia Session and Time b/w NY close & Asia Open  

Traders have a misperception that “More risk equals more return.” There is no doubt that highly volatile pairs deliver impressive returns, but research and data have found that lower-volatility sessions generate risk-adjusted returns over time. This is the reason why traders include the ‘Low volatility factor’ in their portfolio.

Risk of trading in low volatile hours

In times of low volatility, there is increased slippage, which means a trader will hardly get the price they desire for. This would mean eating up of their profits, or even sometimes a complete drain of profits (when trading on a lower time frame). In this way, a trader will not be trading according to the rules of money management. Hence, to manage risk, there is a right way to trade during such times. Some of them are discussed below.

Why is it important?

There are several reasons why trading in lower volatility conditions has the potential to create a lot of money over the long term.

Leverage aversion– In money management theory, we had mentioned earlier that the more leverage a trader use, the more is the risk. In times of lower volatility, traders are restricted from using the leverage from their trading account. As a result, they buy and sell currency pairs that are less risky with good profit potential.

The lottery ticket– Many traders treat the forex market as a “lottery” where they buy and sell currency pairs like they are purchasing lottery tickets. This, in turn, raises the bid of high-risk pairs, which leads to the type of lottery effect and increases volatility. Here, we need to find pairs that are under no one’s attention and buy them (which will be least volatile).

High volatile hours – London & New York Sessions

Many traders live on volatility in the forex market, as volatility is what creates profitable trading opportunities.

Risk of trading in high volatile hours

High volatility hours also has its own disadvantages. During such times, one can see their stop-losses getting triggered frequently. This happens due to the tricks played by more significant players like stop-loss hunting. Another risk is the high leverage provided by forex brokers. So to manage these risks, high volatile hours should be traded in a certain way. Some of them are listed below.

Trend trading– One key opportunity in a volatile market is that trending currency pairs may see the rate of their trend increase. When we are trading with the trend, our risk drastically reduces, which is good for money management.

Short-term strategies– In volatile markets, strategies work the best by booking profits automatically than manually. In this way, we will be eliminating emotions in trading as everything will be done by the system, which is crucial for risk management. Strategies also make use of indicators like RSI and Bollinger bands, which help in identifying overbought and oversold zones.

Bottom line

Every trading session and hour has its own advantages and risks, which a trader needs to evaluate, based on his/her risk appetite. The right time to trade depends on the personality of the trader and style of trading. Volatility on an hourly basis is more complex than how much a forex pair moves each day on an average basis. We see volatility varies drastically across different hours of the day and days of the week. We need to monitor and adapt to these changes. Cheers!