FX Analysis

  • Technical Analysis
    • study price movement
  • Fundamental Analysis
    • analyzing economic, social, and political forces that may affect the supply and demand
  • Sentiment Analysis
    • able to gauge market sentiment aka sentiment analysis

Support & Resistance

  • Support: Where a price tests a lower limit repeatably
  • Resistance: where a price tests a upper limit repeatably

  • When the price passes through resistance, that resistance could potentially become support.
  • The more often price tests a level of resistance or support without breaking it, the stronger the area of resistance or support is.
  • When a support or resistance level breaks, the strength of the follow-through move depends on how strongly the broken support or resistance had been holding.

Trend lines

  • Common form of Technical Analysis
  • Join either 2 major top or bottom points and join them
    • takes a 3rd point CONFIRMS trend
  • Uptrend (join bottoms), Downtrend (join tops),  Sideways
  • Steeper is less reliable, most likely to break
  • Get stronger the more consistent points they have

Channel:

  • Draw a parallel line opposite a trend line = a channel
  • can represent an opportunity for trading within the depth of the channel, can indicate potential support/resistance

Opportunities

Trade support or resistance after the bounce

  • Don’t set trade on the support/resistance, set it after it has bounced with a safety stop/loss trade just outside the other (out) side of the support/resistance

Trade after a break in support/resistance is broken

  • Conservative trading = Needs to be a positive/dramatic break with a stop/loss trade just inside the support/resistance
  • Sometimes, other traders my have taken a position for the bounce, so when a break happens, it may return briefly, but then go for the break again as they liquidate their losing position. Best to wait for the price to break briefly, then return to the support/resistance point then break again
  • Per the scenario above this can contribute to the previous support price becoming resistance and vice versa

 

Posted in FX

FX

Odd time zone? (NZ?) be Swing? or Position Trader?

Leverage: 3% maybe 5% no more: Learn to trade successfully without leverage

$1000 min balance

Make sure you open a forex spot account and not a forwards or futures account.


Thanks babypips.com


Quotes: BaseCurrency/Quote(or counter)Currency = rate

e.g. GBP/USD = 1.51258

rate – how much of quote currency to buy 1 unit of base currency

  • You buy the pair = you buy GBP with USD
  • If you think the base will appreciate against the quote you buy
  • Buying = taking ‘long’ position
  • You sell the pair = you sell the base for USD
  • If you think the base will depreciate against the quote you sell
  • Selling = taking ‘short’ position

Spread:

Dealer offers a bid & ask price

  • bid = what dealer will pay you for the base currency (you are selling) paying out in the quote currency
  • ask or ‘offer’ = what dealer will charge you for the base currency (you are buying) in the quote currency
  • Bid usually < ask
  • Bid – Ask = Spread and represents dealer margin

  • Margin Trading
  • Rollover rates

Broker Types

ECNs also allow their clients to see the “Depth of Market.” Depth of Market displays where the buy and sell orders of other market participants are.

 


FX Market: Types of Orders

When investors trade in the FX market, their first step is to place orders with their brokers to open or close a position. Or if trading for themselves, to open or close a position on their trading platform. The orders placed could be any of the following types of purchase orders:

Market Order: In a market order, an investor places an order to buy or sell a currency at the existing market price. These orders are normally executed in a matter of seconds.

Limit Order: In this FX Market type of order, an investor places an order to sell a currency at a predefined price. This order is placed to lock in a gain. A limit order is especially useful for a low-volume or extremely volatile currency pair, as it gives investors control over the sale price. This order is also useful when the investor expects the market to reverse its trend in the near term. The limit order remains active until the currency reaches a pre-specified price, after which it is automatically executed to clock in the gain desired by the investor.

A limit order has two variables, the time for which an order is active and the price level. An order that an investor specifies should remain active till he/she closes it is called Good Till Canceled (GTC). If an order remains active till the end of a trading day, it is called Good for the Day (GFD).

Stop Loss Order: A stop loss order is one that is placed to close a position before a currency value falls below a level settled by an investor. This order is placed to limit a possible loss in a currency pair transaction.

Stop Entry Order: In a stop entry order, an investor buys a currency above the market price or sells below the market price at a level settled earlier. The investor also specifies the duration for which the order should remain active. Such a purchase or sale is made only when the investor believes that the market would continue in the same direction. This type of order is usually issued to limit a possible loss on a transaction.

OCO (One Cancels Other) Order: An OCO order is a mix of two limit and/or stop orders in which an investor has specified the price and the duration for which the order should remain active. The OCO is such that when one order is executed, the other is cancelled immediately.


 

Lots:

  • 1000 = micro
  • 10,000 = mini
  • 100,000 = standard

 

Different sessions, volatility of currency pairs differs

Asian (Tokyo):

  • low liquidity
  • more active in early part of session due to news announcements, China news important..
  • Other than JPN crosses, more active in Asian Pacific crosses AUD/USD, NZD/USD than others
  • Can set the tone for following sessions
  • If NY session has big moves, expect consolidation in Tokoyo session

European (London)

  • Active so high liquidity & low spreads
  • Most trends start in this session & typically carry until start of NY session
  • Trends can reverse near end of session as Euro traders lock in profits
  • Volatility drops off in middle of session as people go for lunch prior to NY session opening

NY session

  • High liquidity in AM as overlaps Euro session
  • Most econ reports released at start of this session so can impact US$
  • Volatility & Liquidity drops off once Euro session overlap ends
  • Quiet on Fri PM as Asian traders leave work
  • Poss reversals Fri as US traders close positions to minimise exposure to bad news over weekend

Summary best time of day to trade?

Toyko-London overlap:

  • Not so busy as later half of Asian session quiet anyway, so European traders not expecting action at start of London session

London – NY

  • The busiest period, impacted by US/Candana news, and late European news
  • Euro traders consoldiating at close of London session = irratic US midday

Days of week to Trade:

 

EBS plaform, EUR/USD, USD/JPY, EUR/JPY, EUR/CHF, and USD/CHF are more liquid. Meanwhile, for the Reuters platform, GBP/USD, EUR/GBP, USD/CAD, AUD/USD, and NZD/USD are more liquid.

 


 

 

Major Currencies

Symbol Country Currency Nickname
USD United States Dollar Buck
EUR Euro zone members Euro Fiber
JPY Japan Yen Yen
GBP Great Britain Pound Cable
CHF Switzerland Franc Swissy
CAD Canada Dollar Loonie
AUD Australia Dollar Aussie
NZD New Zealand Dollar Kiwi

Major Currency Pairs

The currency pairs listed below are considered the “majors”. These pairs all contain the U.S. dollar (USD) on one side and are the most frequently traded. The majors are the most liquid and widely traded currency pairs in the world.

Currency Pair Countries FX Geek Speak
EUR/USD Euro zone / United States “euro dollar”
USD/JPY United States / Japan “dollar yen”
GBP/USD United Kingdom / United States “pound dollar”
USD/CHF United States/ Switzerland “dollar swissy”
USD/CAD United States / Canada “dollar loonie”
AUD/USD Australia / United States “aussie dollar”
NZD/USD New Zealand / United States “kiwi dollar”

Major Cross-Currency Pairs or Minor Currency Pairs

Currency pairs that don’t contain the U.S. dollar (USD) are known as cross-currency pairs or simply as the “crosses.” Major crosses are also known as “minors.” The most actively traded crosses are derived from the three major non-USD currencies: EUR, JPY, and GBP.

Euro Crosses

Currency Pair Countries FX Geek Speak
EUR/CHF Euro zone / Switzerland “euro swissy”
EUR/GBP Euro zone / United Kingdom “euro pound”
EUR/CAD Euro zone / Canada “euro loonie”
EUR/AUD Euro zone / Australia “euro aussie”
EUR/NZD Euro zone / New Zealand “euro kiwi”

Yen Crosses

Currency Pair Countries FX Geek Speak
EUR/JPY Euro zone / Japan “euro yen” or “yuppy”
GBP/JPY United Kingdom / Japan “pound yen” or “guppy”
CHF/JPY Switzerland / Japan “swissy yen”
CAD/JPY Canada / Japan “loonie yen”
AUD/JPY Australia / Japan “aussie yen”
NZD/JPY New Zealand / Japan “kiwi yen”

Pound Crosses

Pair Countries FX Geek Speak
GBP/CHF United Kingdom / Switzerland “pound swissy”
GBP/AUD United Kingdom / Australia “pound aussie”
GBP/CAD United Kingdom / Canada “pound loonie”
GBP/NZD United Kingdom / New Zealand “pound kiwi”

Other Crosses

Pair Countries FX Geek Speak
AUD/CHF Australia / Switzerland “aussie swissy”
AUD/CAD Australia / Canada “aussie loonie”
AUD/NZD Australia / New Zealand “aussie kiwi”
CAD/CHF Canada / Switzerland “loonie swissy”
NZD/CHF New Zealand / Switzerland “kiwi swissy”
NZD/CAD New Zealand / Canada “kiwi loonie”

Sydney session, the Tokyo session, the London session, New York session

Summer (approx. April – October)

Time Zone EDT GMT
Sydney Open

Sydney Close

6:00 PM

3:00 AM

10:00 PM

7:00 AM

Tokyo Open

Tokyo Close

7:00 PM

4:00 AM

11:00 PM

8:00 AM

London Open

London Close

3:00 AM

12:00 PM

7:00 AM

4:00 PM

New York Open

New York Close

8:00 AM

5:00 PM

12:00 PM

9:00 PM

 

Winter (approx. October – April)

Time Zone EST GMT
Sydney Open

Sydney Close

4:00 PM

1:00 AM

9:00 PM

6:00 AM

Tokyo Open

Tokyo Close

6:00 PM

3:00 AM

11:00 PM

8:00 AM

London Open

London Close

3:00 AM

12:00 PM

8:00 AM

5:00 PM

New York Open

New York Close

8:00 AM

5:00 PM

1:00 PM

10:00 PM

Average pip movement of the major currency pairs during each forex trading session.

Pair Tokyo London New York
EUR/USD 76 114 92
GBP/USD 92 127 99
USD/JPY 51 66 59
AUD/USD 77 83 81
NZD/USD 62 72 70
USD/CAD 57 96 96
USD/CHF 67 102 83
EUR/JPY 102 129 107
GBP/JPY 118 151 132
AUD/JPY 98 107 103
EUR/GBP 78 61 47
EUR/CHF 79 109 84

Below is a table of the Asian session pip ranges of the major currency pairs.

Pair Tokyo
EUR/USD 56
GBP/USD 54
USD/JPY 30
AUD/USD 65
NZD/USD 58
USD/CAD 39
USD/CHF 40
EUR/JPY 57
GBP/JPY 72
AUD/JPY 65
EUR/GBP 23
EUR/CHF

These pip values were calculated using averages of past data from the month of May 2012. Take note that these are NOT ABSOLUTE VALUES and can vary depending on liquidity and other market conditions. Also, the session range for EUR/CHF has not been included since the Swiss franc has been pegged to the euro at 1.2000 during the period.

Below is a table of the London session pip ranges of the major currency pairs.

Pair London
EUR/USD 83
GBP/USD 82
USD/JPY 36
AUD/USD 60
NZD/USD 64
USD/CAD 66
USD/CHF 58
EUR/JPY 80
GBP/JPY 102
AUD/JPY 86
EUR/GBP 40
EUR/CHF

These pip values were calculated using averages of past data from the month of May 2012. Take note that these are NOT ABSOLUTE VALUES and can vary depending on liquidity and other market conditions. Also, the session range for EUR/CHF has not been included since the Swiss franc has been pegged to the euro at 1.2000 during the period.

Here are some neat facts about European session:

  • Because the London session crosses with the two other major trading sessions–and with London being such a key financial center–a large chunk of forex transactions take place during this time. This leads to high liquidity and potentially lower transaction costs, i.e., lower pip spreads.
  • Due to the large amount of transactions that take place, the London trading session is normally the most volatile session.
  • Most trends begin during the London session, and they typically will continue until the beginning of the New York session.
  • Volatility tends to die down in the middle of the session, as traders often go off to eat lunch before waiting for the New York trading period to begin.
  • Trends can sometimes reverse at the end of the London session, as European traders may decide to lock in profits.

Below is a table of the New York session pip ranges of the major currency pairs.

Pair New York
EUR/USD 77
GBP/USD 68
USD/JPY 34
AUD/USD 68
NZD/USD 62
USD/CAD 67
USD/CHF 56
EUR/JPY 72
GBP/JPY 77
AUD/JPY 71
EUR/GBP 36
EUR/CHF

These pip values were calculated using averages of past data from the month of May 2012. Take note that these are NOT ABSOLUTE VALUES and can vary depending on liquidity and other market conditions. Also, the session range for EUR/CHF has not been included since the Swiss franc has been pegged to the euro at 1.2000 during the period.

Here are some tips you should know about trading during the New York session:

  • There is high liquidity during the morning, as it overlaps with the European session.
  • Most economic reports are released near the start of the New York session. Remember, about 85% of all trades involve the dollar, so whenever big time U.S. economic data is released, it has the potential to move the markets.
  • Once European markets close shop, liquidity and volatility tends to die down during the afternoon U.S. session.
  • There is very little movement Friday afternoon, as Asian traders are out singing in karaoke bars while European traders head off to the pub to watch the soccer match.
  • Also on Fridays, there is the chance of reversals in the second half of the session, as U.S. traders close their positions ahead of the weekend, in order to limit exposure to any weekend news.

Best Days of the Week to Trade Forex

So now we know that the London session is the busiest out of all the other sessions, but there are also certain days in the week where all the markets tend to show more movement. Know the best days of the week to trade forex.

Below is a chart of average pip range for the major pairs for each day of the week:

Pair Sunday Monday Tuesday Wednesday Thursday Friday
EUR/USD 69 109 142 136 145 144
GBP/USD 73 149 172 152 169 179
USD/JPY 41 65 82 91 124 98
AUD/USD 58 84 114 99 115 111
NZD/USD 28 81 98 87 100 96
USD/CAD 43 93 112 106 120 125
USD/CHF 55 84 119 107 104 116
EUR/JPY 19 133 178 159 223 192
GBP/JPY 100 169 213 179 270 232
EUR/GBP 35 74 81 79 75 91
EUR/CHF 35 55 55 64 87 76

As you can see from the chart above, it would probably be best to trade during the middle of the week, since this is when the most action happens.

Fridays are usually busy until 12:00 pm EST and then the market pretty much drops dead until it closes at 5:00 pm EST. This means we only work half-days on Fridays.

The weekend always starts early! Yippee!

So based on all these, we’ve learned when the busiest and best days of the week to trade forex are. The busiest times are usually the best times to trade since high volatility tends to present more opportunities.

Managing Yo Time Wisely

Unless you’re Edward Cullen, who does not sleep, there is no way you can trade all sessions. Even if you could, why would you? While the forex market is open 24 hours daily, it doesn’t mean that action happens all the time!

Besides, sleep is an integral part of a healthy lifestyle!

You need sleep to recharge and have energy so that you can do even the most mundane tasks like mowing the lawn, talking to your spouse, taking the dog for a walk, or organizing your stamp collection. You’ll definitely need your rest if you plan on becoming a hotshot currency trader.

Every trader should learn when to trade.

Actually, scratch that.

Every trader should know when to trade and when NOT to trade.

Knowing the optimal times you should trade and the times when you should sit out and just play some Clash of Clans can help save you a pound of moolah (pun intended).

Here’s a quick cheat sheet of the best and worst times to trade:

Best Times to Trade:

  • When two sessions are overlapping of course! These are also the times where major news events come out to potentially spark some volatility and directional movements.
  • The European session tends to be the busiest out of the three.
  • The middle of the week typically shows the most movement, as the pip range widens for most of the major currency pairs.

Worst Times to Trade:

  • Sundays – everyone is sleeping or enjoying their weekend!
  • Fridays – liquidity dies down during the latter part of the U.S. session.
  • Holidays – everybody is taking a break.
  • Major news events – you don’t want to get whipsawed!
  • During American Idol, the NBA Finals, or the Superbowl.
Posted in FX