Part of developing a profitable Forex trading strategy
involves being able to determine market volatility. The
Forex market is open 24 hours per day and you will find it
impossible to keep track of all market activities, all the
time. You will need to understand the timing of various
markets, particularly those in which you are trading and
those that influence your trades, so that you are in a
position to make the best possible decisions during your
trading hours.
Different markets are affected by differing market
conditions. All currency pairs are subject to market
volatility, but most currencies tend to become more or less
volatile during certain times of the day. As a trader, you
will need to have some knowledge of the currency trading
system, currency pairings in different times zones and the
conditions that affect their volatility.
The London market is the largest and most volatile Forex
market in the world since some of the largest dealing desks
of large banks are located there and transactions that take
place usually involve large sums of money. The London
market share is about 30% of all markets. The market hours
are from 2 am to 12 pm EST, which is also the time for
which most transactions are completed. The benchmark
established for volatility is 80 pips and more than half of
the London market currency pairings are likely to reach in
excess of 80 pips. It would not be uncommon for the daily
range of GBP/CHF and GBP/JPY currency pairs to average more
than 140 pips. The ability of these currency pairs to
generate huge profits in a short amount of time appeals to
traders willing to take risks in the currency trading
system.
Since most large market participants complete their circle
of currency conversions during the London market hours,
daily trade activities peak during this time, causing high
volatility. Near the end of the London trading session most
large investors will convert their European assets to US
dollar assets in anticipation of the opening of the US
market. This conversion is responsible for the increased
volatility in GBP/CHF and GBP/JPY currency pairs. The New
York trading session is the benchmark for US trading and it
represents the second largest FOREX market. Trading hours
are from 8 am and 5 pm EST. The majority of transactions
occur in the US market from 8 am to noon EST. During this
timeframe, the European market is still in session, which
creates a market of high liquidity. Trading during this
period of overlap accounts for about 70% of the currency
pair trading in the European session and about 80% of
currency pair trading in the US session.
Other currency pairs that appeal to high-risk traders
during the London market hours include the USD/CHF,
GBP/USD, USD/CAD and EUR/USD currency pairs. It is not
uncommon for these pairs to reach a daily range of about
100 pips. This level of volatility creates opportunities
for entry into the market. In contrast, is not uncommon for
the AUD/JPY, EUR/CHF, AUD/USD and NZD/USD currency pairs to
reach a daily range of about 50 pips. This level of
volatility is more appealing to traders who attempt to
avoid risks. The level of volatility indicates that these
pairs may be less likely to create a loss.
The London market also overlaps with the Asian market. The
Tokyo trading session is the benchmark for the Asian
market. Trading hours are from 7 pm and 4 am EST. Large
investors take positions in the Tokyo market in
anticipation of the opening of the London session. The
GBP/CHF and GBP/JPY currency pairs are also highly volatile
during this timeframe of overlap. Trading during the period
of overlap, which is between 2 am and 4 am, is the lowest
of any trading session. Traders use these slow trading
hours to position themselves for the opening of the
European or US market.
----------------------------------------------------
Andrew Daigle is the creator and author of many successful
websites including ForexBoost at http://www.ForexBoost.com
and http://forex-trading-system.typepad.com , Free Forex
Training Resource for the Novice and Advanced Forex trader.
No comments:
Post a Comment