A sharp minded individual, Phillip is well versed in the latest thinking regarding the psychology, financial management, fundamental and technical analysis aspects of financial trading. The forex market operates around the clock, thus not only does one need to be concerned with price movements, but they also need to know the importance of the time at which they are trading. The morning session does not always play out in this fashion; patience is required in finding the pattern. Gain actionable insight into the topics that will shape
How to trade the news in Forex
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Get in touch with our Trading Magnates who will will coach you and support you instantly. Enjoy the VIP services and join this offer now. We Are Here To Help. Our Courses and Events. One Day Beginners Course. Some other currency pairs are more evenly traded throughout the day and thus this strategy is not as effective.
It has large swinging moves that create excellent profit opportunities. Where there are large swings and profit potential, there is also the probability of being stopped out. We wait for the market to move both directions before entering a trade so we can reduce the likelihood of being stopped out of our trade. After these initial price movements have taken place, the next move — our breakout - is more likely to have conviction behind it because all the weak positions were shaken out of the market in initial rate swings.
Logic Behind the Strategy Traders often put stops just outside ranges. When the market opens, and a direction has not been definitively established, these tight stops are triggered by the increased volatility of the open.
Stops on one side of the opening price are triggered, pushing rates out of the range and giving the illusion of a breakout. Once all the stops and weak positions traders not completely dedicated to this first move after the open have been cleared out, the initial move slows and often reverses. The same thing happens on the other side of the opening price.
All tight stops around the open price have been triggered and now the market is ready to make its first real move. This move is more likely to have strong traders and positions behind it and be based on more solid fundamental and technical criteria than the initial weak moves triggered simply by increased volatility.
We enter a trade after this noise and stop triggering has subsided and the market is making its first strong move and triggering a breakout of the either the high or low of the range established after 7am GMT. The morning session does not always play out in this fashion; patience is required in finding the pattern.
Example The example in Figure 1 shows how the strategy works. The blue vertical line is when trading begins at 7am GMT. The two blue horizontal lines mark the high 32 pips above open and low 33 pips below open made after our open of 1. The market moves down, setting the low, then rallies to set the high and then breaks below the low again. We enter one pip below the old low at 1. A stop of 40 pips is set. When the market moves down 40 pips or the equivalent of our stop , we close out half the position and change our stop order to a trailing stop of 40 pips.
The remainder of the position has a pip trailing stop. The market in this example continued to move down to 1. At this point it began to rebound and the remainder of our position was exited at 1. Sometimes the market will run and we will make more on the second half of the position, other times it will stall and reverse resulting in a smaller gain than on the first half the position.
In this example, the opening range is 65 pips. Therefore, we subtract 65 pips from our breakout point at 1. Figure 2 looks at an alternative setup. The market moves lower, then higher, pulls back slightly, then continues higher, breaking above the opening range at 1. The open, low and high of the morning range are marked by horizontal lines. Learn this simple momentum strategy and its profit protecting exit rules.
Strategy Criticisms As with any strategy, there is a potential downside. It is possible that the market will continue to range, resulting in several false breakouts and, as a result, losses. In other words, the market may make multiple new swing highs or lows then quickly reverse before finally making a large move. It is also quite possible our entry criteria will not be met and thus we miss out on a large move because the market starts moving in one direction and continues in that direction.