INTRODUCTION
Consensus has it that fx markets trend only some 20-30% of the time. Interestingly, conversely, perhaps paradoxically, some 70-80% of trading methods are designed around efforts to capture those trend moves. In that context, we will see advice to trade only the most active pairs during only the most active time frames, i.e., try to catch the markets when they are moving.
Moreover, from the standpoint of looking for movement, you may have also heard that Mondays are difficult to trade because, presumably, the markets are just warming up. Friday afternoons are difficult to trade because traders are closing down early for the weekend. Holidays are supposed to be difficult as well as summers. Maybe it was Will Rogers who said, “Monday is a risky day to trade stocks. The other risky days are those ending in ‘y’.”
We can conclude, and the Baby Pips school confirms, that, if we are looking for movement, the best time to trade is probably during the London session on Tuesday, Wednesday, Thursday, and, maybe, Friday morning. For me, in the central time zone, this would mean that I am either using a robot or a set-and-forget method or I am at my computer starting 2:00 am. May not work for me. What about the other 70-80% of the time when markets are not moving? Would there be opportunities?
Even when the markets are supposed to move, think about how many times this has happened to you. Your favorite indicator, ea, or pa says here’s a movement, enter. Once entered, it’s like everybody went home. Elvis left the building and you watch while prices meander, wander, drift aimlessly, and drive us to the point of just wanting some relief, even if it’s hitting our stop. The point being, prices don’t move more often than they do move.
SLOWHAND CONDITIONS
What if we’re not looking for movement? At least, not the dramatic 50-250 pip moves the trend seekers are hoping for. What if we want a market that isn’t going much of anywhere for a while, maybe ten or twenty pips here and there? Why would we want that and what kind of trading method would exploit slow market times? If the most active trading occurs during the London and on Tuesday through Friday morning, then the most INACTIVE would be Mondays, Friday afternoons, or any day after the London close.
If we want inactive trading, slow movement, we might also prefer to avoid the New York open and start looking when NY settles down, usually by 10:00 am to noon, my time. Considering London and the first part of New York, we have a closed window to avoid trading from about 6 to 15 gmt, which would be midnight to 9 am eastern, or 1 am to 10 am central time. Don’t get too fixated on the exact times. Observe the market. Are you seeing small range bars? One red, next blue, another red? Is it indecisive? Is it sleepy? Because of the time of day, is that sleepiness likely to continue?
Next, avoid news. We are trying to stay away from serious movement. News that affects the pair you are watching is likely to create movement. Do not trade for a couple of hours either side of a major announcement.
To summarize our SLOWHAND conditions for trading:
-
Avoid the most active market times, i.e., midnight to 9 am eastern.
-
Avoid news, probably a couple of hours either side of a major announcement.
-
Observe price movement. Satisfy yourself that it is slow and will probably continue to be slow for at least a while longer.
TRADING
We are going to straddle the slow market with limit orders placed at quarter-points. Quarter-points are 00, 25, 50, and 75. These points are places of minor resistance where the market may at least hesitate, if not reverse. The little research I have done has been only with the eur/usd, so everything following will be regarding that pair. Let’s say the e/u is at 1.4010. The nearest quarter-point up is 1.4025 and the nearest quarter-point down is 1.4000. We will place a one-unit sell limit order at 1.4025 and a one-unit buy limit order at 1.4000. We are hoping that price movement will be contained within this twenty-five pip range, that the market will drift one way just enough to put us in a trade, and then drift the other way just enough to get us a profit. Once entered, we do not want sharp, decisive moves. We want the meandering indecisiveness typical of a slow market.
More to come in additional posts.
