Three Main Forex Sessions

It has been stated a lot of times on this website that Forex market is open twenty four hours a day and five and a half days per week. It means you can select any day or any hour of the day and open a trade with expectation to make money. Day traders love currency market above any other financial market as it virtually does not close and you can trade it from any country of the world, because this financial market never sleeps. As it is open 24/7 you may rightly assume that volatility and number of participants varies as trading moves from one time zone to another. Forex market is divided into three major sessions: Asian, European and US. Let’s briefly look at each one of them. Asian session When the currency market opens on Sunday after weekend, it starts with the Asian session. Key countries that fall within the region are: Japan, China, Australia, New Zealand and Russia. It is obvious that Tokyo is the centre of the region and most price action and transactions happen when Tokyo markets open. On the other hand, one should have in mind that this session is least volatile and price of currencies move least in comparison to the other two sessions. Breakouts are rare during the session and if they happen, in most cases they are fake. The best pairs to trade are Japanese Yen denominated pairs. European session This is the best session to trade as it has the highest volatility. The main financial centers that fall within the area are: Germany, France and other big European countries, but the main financial centre for European session is London. Most traders try to trade London open as London market has the highest turnover and price action in terms of pips is the best. Most often traded pairs around this time are: eur/usd, gbp/usd and other Euro, British Pound and US dollar denominated pairs. US session At around 12:00 GMT US markets open and US session starts. The main financial centre is New York. It carries a lot of volatility, because key fundamental and macroeconomic events take place during US session when financial and economic news from US are announced. Some traders trade these news events and make nice cash. Conclusion You may choose a session depending on your location and on the type of trading style you like. If you like low volatility markets you can trade Asian session. If you enjoy volatility and sharp market moves you would probably choose European market. If you are a news trader you will definitely choose US...

The Basics of Range Trading

If one learns how to trade a range profitably, one will have limitless opportunities in Forex market. Why? Currencies, like any other securities spend a lot of time in ranges and do not trend that often. Likewise, Forex does not offer us too many real breakouts that breakout traders could capitalize on. This leaves us with trend and breakout trading being second best trading strategies and range trading the best one. If currencies spend ten months out of twelve in ranges it is only logical to find a way to trade these market states convincingly and make money every month, possibly every week. What is a range? A range is not difficult to define. When price rises and at some point fails to break the most recent highest point, we can state that the top of the range has been made. When it reverses and starts falling and eventually fails to break the most recent lowest point, we can state that the bottom of the range has been made. All trading then happens between these two extreme points of the range. How to trade a range? One should not be a genius to understand that the best way to trade this kind of market is to sell when it goes to the peak of the range and to buy when price goes to the bottom of it. This is how a key rule of investment “Buy low and sell high” is realized in practice. Wait for a reversal pattern at each end of the range It is not wise to jump on a trade just when price reaches the bottom or the top of the range. A smart trader waits for a reversal signal. It could be a reversal candle pattern, a chart pattern, a false break and a few more signs that indicate price is going to stay in the range. From the chart below you can see that eur/usd pair was in a range of 1.1500-1.1100 from September to the middle of October of 2015. A range trader had a few opportunities to trade the range. Firstly, he could have taken a long trade at the bottom of the range when a bullish pattern formed on the 23rd of September. Secondly, he could have taken a short trade when there was a false break of the top of the range and a bearish candle formed right after it on the 15th of October. In each case a trade would have made around 300 pips. As price broke out of the range downwards without forming any reversal signs on the 23rd of October a trader should not have bought the pair at that...

Continuation Patterns: Flags

A flag is another continuation chart pattern. It can be bullish or bearish, depending on what kind of move was before the pattern formed. If the move was down you would expect a bearish flag and if it was up you would wait a flag to be bullish. Technical analysts argue about the length of time that would validate the pattern, but most would agree that it could be from a couple of days, to a couple of months. Key components of a flag A flag pattern should have a sharp move that precedes consolidation or a range. This strong move forms a shape of a flagpole, which distance has to be measured from the area where the move started to the point where the move stalled. After the move is over and price starts ranging it forms a rectangular sloping channel that does look like a flag. If previous move was up, the sloping channel should be down. If previous move was down, the sloping channel should be up. If you draw the trend lines through the highest and the lowest points of the pattern you will be able to see the shape of a flag clearly. How to trade a flag Sooner or later a breakout occurs and in most cases a bullish flag is broken upwards through the trend line of the upper channel and a bearish flag is broken downwards through the trend line of the lower channel. So, if you spotted a bullish triangle and expect a break up, you need to place a buy stop order a few pips above the upper trend line and with a stop loss a few pips below the most recent support. In most cases that would be around 50 pips. If you defined that a flag is bearish you have to place a sell stop order a few pips below the lower trend line of the pattern with a stop loss order a few pips above the most recent resistance (usually some 50 pips). An easy way to calculate your take profit target is to measure the size of a flagpole and add that amount of pips to the breakout point (up or down depending which direction price breaks). Below is the example of a bearish flag that formed in eur/usd pair when it was in a sharp downtrend. It took only one week for the pattern to form. Bearish flagpole was 300 pips and that was our minimum target. Stop loss was around 50 pips. Our target was reached and we were happy to make hundreds of pips....

Continuation Chart Patterns: Ascending and Descending Triangles...

I want to continue talking about most popular chart patterns, but this time start analyzing continuation patterns: ascending and descending triangles. There might be more combinations of triangles, but most of them will have the same attribute: narrowing range. This is expressed by another attribute: two lower highs and two higher lows, which clearly indicates contraction in volume and a narrowing range. This eventually leads to a breakout up, or down. If you connect those lower highs with a trend line and higher lows with another trend line you should get a shape of a triangle. Eventually price breaks either up or down and price moves strongly, usually in the direction of previous trend. If the previous trend was up, we would expect an upward breakout and if it was down, we would expect price to break downwards through the lower trend line. How to trade these patterns These technical patterns are best traded using breakout trading strategy. In case of an upward break we would place a buy stop above the second point of an upper trend line with a stop loss a few pips below the most recent support level. In case of a downward break we would place a sell stop below the second point of a lower trend line with a stop loss a few pips above the most recent resistance level. Minimum expected target How to calculate how far the price is going to travel? Well, nobody knows that for sure, but in most cases a formula that helps to calculate minimum expected target often works. You simply have to measure the base of the triangle or distance from the highest point to the lowest point and add the distance to the breakout point. When price eventually breaks up or down, that’s the minimum distance you expect price to go. If the base is 400 pips, that’s how much you expect (at least) price to travel from the breakout zone to your take profit target. In most cases it will go much more and if you trade with a few or more positions you will be able to accumulate a lot more pips. Below is an example of a small bearish (descending) triangle in eur/usd pair that was only a breather in a huge downtrend. Two high and two low points are clearly visible in the chart. You simply had to place a sell stop below the number 4 point in the chart with some 40-50 pip stop loss and when the breakout occurred you could have made thousands of pips, had you traded with a few...

Double Bottom Reversal Pattern

This is the third blog post on the series of basic chart patterns. If you haven’t read previous ones, be sure to do it. I am still covering the first big group of the patterns: reversal ones. Today I want to discuss double bottom formation and clarify how you can trade it. It is basically the same structure as double top, except inverted, in the same fashion inverted head and shoulders pattern (bullish) is to head and shoulders (bearish). So, let’s define it! It is a bullish reversal pattern that is often found at the end of a bearish trend and when validated it often results in a big uptrend. This technical structure consists of two bottoms that are relatively equal in terms of place they form. So, firstly, there has to be a bearish move before the pattern forms. At some point price reaches important support level, where the first through (bottom) forms and then it starts going up rapidly. After some time price reaches important resistance level and forms the first peak. It entices bearish traders to step in and continue selling as they assume the downtrend will continue. Price collapses back to previous support (through) and fails to break it convincingly. In most situations this bottom will be slightly higher than the first one, in other situations price can break previous bottom by some 3-15 pips and then a sharp reversal will take place. When that happens we can be sure that the second through (bottom) is in place. Price will start rising again till previous resistance level where it stopped and rallied to form the second bottom. It may linger there for a while, but double bottom pattern is really validated when price breaks up through that resistance and continues going up. How do you trade it? One of the best ways to trade the pattern is to place a buy stop order above the first resistance level where price came and then collapsed to form the second bottom. You may wait for the level to be hit second time, retrace a little and then if it starts going up again, place a buy stop order above the resistance with a stop loss order below the most recent support. When the resistance is broken, pattern is validated and you should be in the game of buying. Where to take profit? It is not difficult to calculate a minimum expected target. You can do that by calculating the distance from the bottom to the resistance and adding it to the breakout level. If the distance is 500 pips, this is the minimum distance you expect price to go from breakout level upwards. I want to illustrate how it works by attaching a weekly chart of gbp/usd with a double bottom pattern. When the structure was confirmed after resistance was broken price rallied more than 1400 pips before reversing. The minimum target for the move was measured to be 938 pips. You could have taken that easily and many more had you traded with a few...

Double Top Reversal Chart Pattern

We continue the series of articles on best known chart patterns in financial markets. Last time I wrote on head and shoulders (don’t forget to read that one). May I remind you that these patterns are usually placed under two categories: continuation and reversal. It would be best for us to look at reversal category first and then go on to continuation patterns. So, let’s talk about double top today. It is a bearish reversal pattern that is often found at the end of a bullish trend and when validated it often results in a big downtrend. This technical structure consists of two peaks that are relatively equal in terms of place they form. So, firstly, there has to be a bullish move before the pattern forms. At some point price reaches important resistance level and starts going down rapidly. After some time price reaches important support level; which entices bullish traders to step in and continue buying. Price rallies back to previous top and fails to break it convincingly. In most situations this top will be slightly lower than the first one, in other situations price can break previous top by some 3-15 pips and then a sharp reversal will take place. When that happens we can be sure that the second top is in place. Price will start falling again till previous support level where it stopped and rallied to form the second top. It may linger there for a while, but double top pattern is really validated when price breaks lower through that support and continues going down. How do you trade it? One of the best ways to trade the pattern is to place a sell stop order below the first support level where price came and then rallied to form the second peak. You may wait for the level to be hit second time, retrace a little and then if it starts coming down again, place a sell stop order below the support with a stop loss order above the most recent resistance. When the support is broken, pattern is validated and you should be in the game of selling. Where to take profit? We need to have a minimum target. You can do that by calculating the distance from the peak to the support and adding it to the breakout level. If the distance is 500 pips, this is the distance you expect price to go from breakout level downwards. As the picture is worth a thousand words I have attached a weekly chart of eur/usd with a double top pattern. When it was confirmed after support was broken price went down more than 3000 pips before reversing. The minimum target for the move was measured to be 750 pips. You could have taken that easily and many more had you traded with a few...