Looking back, I started trading around eight years ago and my first exposure to the markets was with stocks. This seemed like the ideal place to start my journey as most people are familiar with the act of buying and holding equities at some point in the their lives, and what better place for me to also get started? However, although I do still enjoy the stocks arena, it can be an expensive market to trade and if you are looking for more flexibility in what times of the day you can trade, then you can be very much limited. So, naturally looking to expand my trading horizons, I decided to get further education in the area of FX trading as I had heard of the many benefits surrounding currency trading and wanted a little of the action for myself.
As I soon found out, I could get far better leverage in currencies (at the time I started you could enjoy up to 100:1 in FX which was changed to 50:1 a few years ago), hence not requiring as large of an account, plus I loved the idea that the market was open 24 hours a day for most of the week – trading heaven for me at the time! No longer was I limited to the opening of the equities market for the best trades. I could now find opportunities pretty much all day round. Obviously over the years my time spent at the screen has been reduced dramatically but then when I was less experienced, I thought that I would have to be at the screen as much as possible if I was to become a consistently profitable trader and in my mind FX was the ideal place to do it. From where I was based in London I could trade currency from the open on Sunday, all the way through until the closing of the New York Markets on the following Friday night. This was to be the perfect solution, or so I thought.
In reality, I soon discovered that actual quality trading opportunities would come and go and that it was the patience and discipline I needed to enforce to wait for the best setups was what I needed to be most mindful off, not sitting at the screen watching each and every candle form minute by minute. While there were dozens of great currency pairings which I could trade, I soon discovered that at different times of the day, different pairs were moving while others were almost static. With so many FX markets, as I was flicking through charts hoping to “find” a trade, I soon got myself way too confused and made some awful trades based on the fact that I wanted to trade, rather than wait for the right one at the right time.
Going back to the drawing board, I looked through my educational notes from my FX training course and remembered my mentor at the time telling me that key sessions during the day would give me better setups than others. It was my responsibility to just find the best sessions to trade the best pairs. At any given time in the market, the most active currencies are the Euro, Yen, Swiss Franc, Canadian Dollar, Australian Dollar, New Zealand Dollar, British Pound and of course the US Dollar. Any currency traded against the US Dollar from this list, like EURUSD or USDCHF, is an ideal place for traders of all levels. Sure you can also use different combinations of these majors which we call cross-pairs but these are better as you gain more experience down the line. However, as my mentor told me, while these were good pairs to trade, they also needed to be traded at the right time. Think about the logic for a second: are there likely to be more people trading the USDCAD during the working hours of North American markets or during the working hours of the Asian Markets? Let’s take a look at this on a chart:
In the above chart of USDCAD, we have applied the Average True Range (ATR) indicator to show from a graphical perspective how volatility or market activity is very low on a consistent basis around the start of each new trading day, which is 10pm GMT or the start or the Asian trading session. However we can see that as the day rolls on, and the New York session starts to approach from around 12pm GMT, the activity picks up on the pair as institutions and retail traders alike step into the market, thus providing better market movement, greater liquidity and more quality trading opportunities.
Now let’s focus on the AUDJPY pair:
Unlike the USDCAD, the AUDJPY’s ATR shows a far more consistent level of activity across the entire 24 hour market trading session. For a start we would logically expect more traders to be active on the pair during the Asian session as these are the working hours for Australia and Japan but we can also observe that the activity continues pretty much through the European and US sessions too. If you are confused by this then don’t be: it is because the AUDJPY is the closest thing to a carry trade right now and hence maintains a solid level of activity in line with the broad market much of the time. More on the carry trade in upcoming articles.
In summary, I wanted to share my experience with you from the early days of my own FX trading and how I overcame the need to trade by finding the right sessions to trade the right parings. Try the ATR for yourself and you will get a great idea of when is a better time to trade a pair and when it isn’t. Eventually, with the right education, guidance and a trading plan, you will soon learn to trust your rules and place your trades in the set and forget style, with little concern for spending hours in front of the screen; but in the meantime I hope this little screening tool is of help.
Until next time take care,