Forex Analysis - Stage 5

STAGE V – WHEN

When exactly should I trade, must be one of the many questions in a novice trader’s mind. And yes, it is an important question, especially when you know that Forex is a 24 hours market, open for 5.5 days a week.

What needs to be understood is the fact that although its true that the Forex market is open 24 hours a day, but it does not at all mean that the market action the same always. Majority of traders and investors do not stop to give this fact a thought for even a moment. They do not even consider the impact this fact can have on their trades.

Being in this volatile market, you as a trader should always give yourself a fair chance to play. Just because a market is open 24 hours does not mean that all those 24 hours, it is moving in your favor. There will be hours minutes or even moments when the market can move against you. Trading during those circumstances is never advisable. Trade only when you are sure that the market is most expected to go with you. For example, the markets are known to go in slumber during the days when London and New York are closed.

This is exactly where technical indicators are useful. But for checking their authenticity of these technical indicators, the best way is the trading volume. It is believed that these indicators turn out to be more accurate when the trading volume is high.

But since there are no trading volume records obtainable in the Forex markets, it is advisable to make use of trading ranges, which is the next good option. Trading range can be defined as the difference established between the high and low price limit for a specific currency pair over a specified time period like one trading day.

With this approximate data in hand, an investor can now more precisely and cautiously calculate when is the right time for him to trade.

If the trading range is high, entering the market would be a safe bet at that hour rather than the time, when the trading range is tight or low. Let’s take the example of a trade in EURUSD, which has an average trading range of 25 pips at 10 AM EST against the EURUSD which has an average trading range of 7 pips at 10 PM EST.

Now entering the market during the morning session of trade will give you a little more space for a safe trade in case it does tend to fluctuate a little high or low, as compared to the evening trading session, in which you would as it is be trading on margins only.

That is the reason why technical indicators are given so much importance as they are mostly useful in predicting accurately, the movements of the market. More often than not, the beginners in this trading business tend to ignore the importance of "when to trade" in the market. The professional, expert and refined trader always appropriately times his entry in the market in order to reap the maximum benefits and make the most profitable deals. Limiting losses by analytically monitoring the market gives a trader a more prospective outlook.