In forex trading tutorial it is not often that you can read about technical analysis. This is caused by the fact that the fundamental analysis is simply closer to my heart and wallet. But now it is time to change that. I came across a very interesting description of certain investment strategies based on technical analysis and I would like to share it. On many occasions it has proved to be very effective idea for investment.
It is widely accepted notion that the currency market is open 24 hours a day, but it is not entirely true. Of course, given the overlap at each individual markets and time zone differences, you can invest in the forex 24 hours a day, 6 days a week. However, you can very easily see by yourself that the market is much more volatile and active at certain times at regular intervals. Most investors seem to – whether consciously or quite accidentally, invest in these “peak hours”, but it’s not that surprising, as these are precisely the best times to make money on forex.
Author of article which I’m writing, accurately described the opening hours of the most important markets – this is usually of 9 am local time for specific market. Just before the official opening of those markets, they appear to be “dead,” and right as the clock hand hits the whole hour, it’s immediately followed by a wave of very intensive trading activity. This is mainly because banks go into action and open new positions for whole day, all stop-loss commands are removed, and the market is trying to determine which way to go. In each of the major markets, it’s very easy to predict currency pairs, which comprise the greater part of the traded currencies. It is those currencies that investors should pay particular attention during the opening hours of the local markets. In the case of Tokyo it is, of course, Japanese yen (JPY), British Pound in London (but also the Euro (EUR) and the Franc(CHF)), and in New York it is obviously dollar (USD).
This searching for your own way through the market can create a great opportunity for investors, provided that there will be “morning weakness”. What is it? In short, the idea is that the market will start rapidly in a certain direction, and broker desk can act as a ratchet, which cuts the morning profits. In many cases, this sudden spurt in the forex market in a certain direction might just as quickly turn away, until the dominant trend for the currency pair re-establishes. Investors who have predicted such behavior, can open positions in the direction of the dominant trend, and then sail on it’s wave, when it will again forms after the morning shot. This investment strategy is very effective.
Of course, investing according to this strategy forex is not easy and requires appropriate knowledge. Every investor who would like to apply this strategy should carefully study the behavior of currencies in opening hours for specific markets and learn how to correctly interpret the direction of morning market movement, in order to be able to identify the morning weakness.
This strategy seems to be good for people beginning their adventure with technical analysis, as well as for fundamental analysis fans who want to invest only for a short period of time. The basics are clear – remember that the market is much more active at certain times. Remember that in addition to the main trend for the pair, there may be some micro-trends that in certain circumstances may move in the opposite direction. Be sure to use stop-loss order – if it happens that you invested in the wrong direction by reading the morning weakness incorrectly, your losses will be minimized.
You should also refer to the two chapters of forex tutorial that will expand your knowledge about forex trading strategies. A section devoted to the different forex strategies, where you can find many ideas for efficient investment, and forex exchange strategy that contains information about how to build your own forex trading strategy and gives three examples of popular investment strategies.