FOREX Trading Plan 2010-June-3
Well after a few months of simply sitting and watching the Forex markets I think I am finally in a position to put together a trading plan. It is based upon the observation that the Forex markets have several sessions throughout the day that correspond to different groups of traders entering the market. Within a particular session the market direction tends to be constant. Note: there are obvious variances to this particularly during the New York session if major economic announcements are released. But I am asleep New York time, so these are less of a concern.
Specifically we have the Asian Session that itself breaks into the Sydney Session and the Hong Kong Session. These two are followed by the London Session and the New York Session and finally a brief period when no market is really within a business day.
During each session we have a different group of traders in the market who more or less are in the same frame of mind depending on what was in their morning Newspaper and what the charts are saying when they hit their desks. So they are either in a Bullish/Short Covering, Bearish/Profit Taking or Scalping/Neutral mood. This frame of mind tends to persist throughout the session. At the end of a session there may be some profit taking.
This is mainly written with a view of the EURUSD, GBPUSD, AUDUSD pairs, but should apply for most of the majors.
So how to trade this.
First go and find out the opening times of each session and come up with an indicator or alert that you can throw up on your chart so you know what is open and in particular where the session boundary is. (Don’t forget to convert this to the time zone you are trading in – and remember to include daylight saving changes…)
The session times correspond to normal exchange hours plus or minus a bit. In local times I have Sydney 9:00 AM, Hong Kong 10:00 AM, London 8:00 AM, New York 9:30 AM, Markets Closed 5:00 PM.
Remember that when a new session starts even if the previous session is still open you have a new group of traders about to start pumping orders into the market. So if the market is going to change direction, this is when it is most likely to occur.
Use a five to fifteen minute chart and wait a few candles for the market direction to become obvious, but don’t wait too long. Watch out for bounces off pivots or other major support lines. Once you have worked out the underlying pressure, enter in that direction with a reasonable stop loss. For a stop loss I am looking at 15 to 30 pips depending on volatility on the EURUSD pair. The AUDUSD and GBPUSD pair can be more volatile so may require a larger stop.
Keep an eye on it because scalping/choppy days look the same when they start as long and short days do. If the session ends up choppy either scalp the channel it is in – most likely between a pair of pivots or simply take the hit and walk away for the session if you are uncomfortable with scalping.
Use a five tick per candle or some suitably fine resolution to set your entry.
To exit that is up to you. Either close before the session ends or take the risk and carry it though exiting if the trend changes. You could take a fixed number of points or even use the direction to define a direction to scalp throughout that session if you are nimble.
A few observations to keep in mind
Sydney and Hong Kong are more likely to be neutral than London and New York. But there are enough opportunities here even so. London is normally the biggy. If London is flat New York probably won’t be. Hong Kong reasonably often will pull back to a pivot around 5 or 6 am London time prior to London Open so watch out for this. London Open can also be sloppy in the sense that a firm direction may not resolve until 10:00 am London time. It usually does – but don’t walk away from your screen assuming it will.
Remember that when the next session opens it is a new game. Everything resets to zero so you have to adapt your mindset.
I will let you know in a month or so if it works. Been watching so long I have to get back into a trigger pulling mind frame.
Good luck and happy trading 
June 03 2010 02:03 pm | Trading
