What can slow down forex trading momentum?
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In this session, we will be looking at the question of what can slow down forex trading momentum.
The forex market reportedly turns over more than 5 trillion dollars every trading day. It is the most liquid business on the planet. And it keeps growing, with the retail side of the business maintaining steady growth, with extra brokerages opening up, and more and more ordinary people trading online from home. The growth of the educational side of the market is also helping to attract would-be traders with promises of unknown secrets being opened up to them and quick riches to be made trading Forex.
While these topics are great material for another video, today we need to get back to the point of forex trading momentum, where one moment the market is absolutely flying about with lots of liquidity and volatility, with huge swings on price action, and exchange rates moving over 100 to 200 pips in a session and then suddenly stopping almost in its tracks and flattening out during periods of consolidation. So, what causes this?
There are several reasons. But first of all, let’s take a look at the biggest reason. Here is a timetable of the trading centres where Forex trading goes on 24-hours a day, 5 days a week.
The time zones are based on Greenwich mean time in this example, and we can see that London, including Frankfurt, begins its trading day around 7 AM in the morning, New York follows from 12 noon, Sydney joins the markets shortly after 9 p.m., with Tokyo joining the market at about 11 PM.
As with many other businesses, typically, you will find a surge of activity when people begin their day’s work. The forex market is no different. Traders start work at the desks and need to make money as quickly as possible because that’s what they get paid to do and because they will have orders from paying clients that need entering into the market for varying reasons, including hedging, closing out winning trades from overnight or longer time frames, closing out losing trades from overnight or longer timeframes or simply fresh speculative orders to be executed. They also need to manage or correct positions where they may have gone home in the evening, and the later session pushed particular trades in an unexpected trend. Plus, they will need to try and make money with their own bank’s trades.
And just like most people, energy levels tend to fade off after a couple of hours from starting work, and people need a break. And that is why shortly after the beginning of the London and European session and the Sydney and Tokyo sessions, we begin to see lulls in the market after a couple of hours of trading. This also happens during the latter stages of the US session.
However, this does not include the morning of the New York session, and the key reason is there will likely be economic data releases from the United States during their morning, where the US dollar, being the most widely traded currency, has a greater propensity to affect market direction after the release of economic data than any other release.
And so, another reason for lulls in market activity can be attributed to traders waiting for key market economic data to be released, and where the higher the likely impact of the data, the more likelihood of caution before the data release, which can cause flattening in exchange rates, while traders anticipate the release.
Another major reason for quiet times is the ending of the New York session and the beginning of the Asian session and where it is not unusual for the five areas to have varying views about where are forex exchange rates should be, which adds to the ebb and flow of the foreign exchange market and where typically as well as the slow down which is reflected on charts by periods of consolidation, we can often see price reversals and trend changes in trend direction at the end of one session and a beginning of another.