There are a number of scenarios
where it's inadvisable to trade. These can be separated into
personal/environmental reasons and market reasons.
Personal reasons not to trade:
Market Reasons not to trade:
I stay out during certain economic releases. Generally speaking it is only during highly volatile ones for the pair I am trading and USD releases. So if I am trading GBP/JPY I will steer clear of trading during major GBP releases, major JPY releases, and major USD releases. On the 4hr charts most ER’s not very significant. They might push the market 10 or 20 pips in one direction but with a 50 pip stop more often the position is safe. However major news releases have the ability to move the market fifty, one hundred, or even a few hundred pips. So when a major news release is close I usually jump out of or do not enter trades. You can see news releases for the coming weeks here (http://www.forexfactory.com/calendar.php). The ones to steer clear of are the red USD reports and the RED reports for the pair I am trading. So for GBP/JPY any red GBP or JPY reports.
Important Speeches:
What happens when there is an important speech is traders around the world flick on Bloomberg and listen intently much like pigeons waiting for scraps of food. As soon as the speech giver gives their thoughts on the economy (even accidently) traders start taking shorts or longs and the market goes crazy. If what they hear is good they buy if it’s bad they sell. Often timesafter they hear something good they hear something bad and the currency flies up and then plummets all in the space of a few min. To be honest I am making it sound a little crazier than it is,very few speeches are actually like this. The speech givers are usually pretty careful about what they say but if they do slip up and say something prices can fly in all directions. For me it is just a whole lot safer to stay out during important speeches. But what are important speeches? Well I only really care about speeches from central bank leaders. America’s central bank leader Ben Bernanke is a dangerous man, a few wrongwords out of his mouth can have a major impact on the USD and many other currencies along with it. The British CB leader Mervyn King can do the same especially with the GBP. I also watch out for Jean-Claude Trichet’s ramblings as they can affect the Euro and other currencies along withit. So in short when one of these three men are up on the podium I do not enter any trades. You can sometimes catch speeches live on Bloomberg TV which is available free online here (http://www.bloomberg.com/streams/video/LiveBTV200.asxx).
Range Bound Periods:
Sometimes a currency pair will fall into a tightly ranging period. A tightly ranging period is when the currency pair moves far below its ADR and seems to be stuck between two points. Earlier I gave you the ADR of GBP/JPY as 281 pips, in the image below we see GBP/JPY bouncing between two lines about 120 pips apart. At times like this I tend to saty out of the market. When the currency pair picks up again and starts trading at it’s ADR I will get back into the market. Sometimes I may enter but if I do my targets will certainly be much lower.
Personal reasons not to trade:
- Get rid of all distractions. You need to be able to concentrate on the charts and not get caught up with other things going on. For instance you might be waiting for a trade and then you get distracted and when you come back to your chart you have missed the trade or you buy instead of selling etc. Distractions can be costly. However, life is full of distractions so put the cat in the hall and shut the door. Put the baby in the playpen where you can see/hear her but at least you won't have to worry that she has wandered off again... Whatever your potential distractions are, deal with them before you start to trade. Even a Ninja can lose a fight if distracted...
- Emotional times. If something emotional has happened, and you can't be subjective, then do not trade! This could be any number of things that had a negative impact on your day. It could be that you broke up with your partner to a death in the family etc... You need to be able to assess what's happening in a very short period of time, and if you are mentally elsewhere then this can have a negative impact on your trading account...
Market Reasons not to trade:
-
Bank Holidays. These are scheduled and there
is nothing you can do about it. If there is an USA or UK Bank Holiday I
don't bother trading. This is because the Banks are the biggest
participants in the Forex market. If they are on holiday then the volume
of transactions being carried out is greatly reduced. This can lead to
either really static markets or on occasion erratic markets. Either way
it does not follow the normal pattern, so I stay clear.
If however, it's a Bank Holiday in another country such as Japan or Australia then I wouldn't trade currencies that belong to those countries, e.g. jpy or aud pairs, but would still trade the gbp/usd/chf etc pairs...
-
News. There are scheduled news releases, and
economic news, that is due to be released throughout the day. These can
be found, in advance, in a number of places but the most popular one
seems to be the Forex Calendar, provided by Forex Factory.
There are 3 types of news; yellow, orange and red. Each has a different impact and is all explained in the calendar. There tend to be folders that generally are not a good idea for a new trader to try and trade. High impact, red folders, can really move the market, sometimes spiking in both directions, before settling done. These are high risk times where a lot of people get stopped out.
The one's I specifically avoid would be the ISM Manufacturing data, interest rate announcements and NFP related news announcements. However, it's not just the announcements themselves that can affect the market. The rumours surrounding what the potential numbers will be can cause the markets to move in anticipation. Therefore, it's not a good idea to trade, for the hour before or after the news. With NFP, it's a good idea not to trade that day at all.
Now that may seem extreme, but these can be the biggest account killers and can wipe out a new account in a few seconds.
-
Speeches. These tend to generally be on the
calendar as well. If specific people are talking then please do not
trade. These people include the ECB President Jean-Claude Trichet, Fed Chairman Ben Bernanke and BOE Governor Mervyn King.
It's important that when the BOJ Governor Masaaki Shirakawa speaks to
pay attention. These tend to happen when people are asleep so less of a
worry. But if you are trading the Japanese session then be wary!!
These people are notorious for dropping hints about economic policy changes that are likely to happen with the currency they are responsible for. These hints cause a lot of speculation in the market and therefore a lot of price movement. These can be big currency movers as they are generally responsible for setting Interest rates in those countries, and as mentioned above interest rate announcements can cause large movements.
-
Erratic Periods. There will be times where a
currency is moving differently from normal. Perhaps it's spiking and
you don't know why. This is a good time to stay out of the market. If
you don't understand why it's moving like this then it's generally
because there is unscheduled news that has been released or leaked. This
is generally bad news and the market is still unsure as to how to react
to it. For instance, this was happening during the recent credit crunch
and the various Banks reporting that they were having major
difficulties.
-
Weekends. It's unadvisable to hold trades
over the weekend, unless your method is a long term strategy which
specifically involves holding trades for longer time frames, such as
weeks or months.
A lot can happen over the weekend. All it would take is for 1 Bank to go bust over the weekend for your position to go completely different from how you expected... A terrorist attack could happen over the weekend, which would also move the markets crazily. Now these might seem out of the norm but if you look these have happened recently on more than 1 occasion.
These types of events will generally lead to the market opening again will a large gap and generally with a large change in your position. A lot of times this can cause serious harm to your trading account balance.
-
Market close/open. Good idea to avoid these
or be wary around these times. At market close a number of trading
positions are being closed. This will lead to volatility in the currency
markets and can cause the price to move erratically. The same applies
at market open. A lot of people are opening positions as they do not
want to hold them over the weekend for the reasons stated above.
-
December and Summer Holidays. Banks tend to
trade the Forex markets at least once a day for balance sheet reasons
and can also trade a number of times throughout the day for speculation
reasons.
When I say balance sheet reasons, I mean to balance out their currency book. They need a certain amount of each currency to meet the demand of their customers, both personal and business, that will need to buy foreign currency from the bank or exchange their foreign currency for their local currency. Banks have to balance this out each day otherwise they leave themselves open to Foreign exchange risk. This means Banks are the major players in the Forex market.
So during December and the summer months a lot of Bank staff take their holidays. Therefore, Forex markets generally slow down as there are fewer participants in the marketplace. This is generally a good time for private traders such as us to take a holiday. If the markets are flat there's no point in trading so go off and enjoy yourself.
You gotta keep your body in prime fighting condition but holidays are also part of giving your mind some relaxing time to recharge those batteries, ready to go when you return.
I stay out during certain economic releases. Generally speaking it is only during highly volatile ones for the pair I am trading and USD releases. So if I am trading GBP/JPY I will steer clear of trading during major GBP releases, major JPY releases, and major USD releases. On the 4hr charts most ER’s not very significant. They might push the market 10 or 20 pips in one direction but with a 50 pip stop more often the position is safe. However major news releases have the ability to move the market fifty, one hundred, or even a few hundred pips. So when a major news release is close I usually jump out of or do not enter trades. You can see news releases for the coming weeks here (http://www.forexfactory.com/calendar.php). The ones to steer clear of are the red USD reports and the RED reports for the pair I am trading. So for GBP/JPY any red GBP or JPY reports.
Important Speeches:
What happens when there is an important speech is traders around the world flick on Bloomberg and listen intently much like pigeons waiting for scraps of food. As soon as the speech giver gives their thoughts on the economy (even accidently) traders start taking shorts or longs and the market goes crazy. If what they hear is good they buy if it’s bad they sell. Often timesafter they hear something good they hear something bad and the currency flies up and then plummets all in the space of a few min. To be honest I am making it sound a little crazier than it is,very few speeches are actually like this. The speech givers are usually pretty careful about what they say but if they do slip up and say something prices can fly in all directions. For me it is just a whole lot safer to stay out during important speeches. But what are important speeches? Well I only really care about speeches from central bank leaders. America’s central bank leader Ben Bernanke is a dangerous man, a few wrongwords out of his mouth can have a major impact on the USD and many other currencies along with it. The British CB leader Mervyn King can do the same especially with the GBP. I also watch out for Jean-Claude Trichet’s ramblings as they can affect the Euro and other currencies along withit. So in short when one of these three men are up on the podium I do not enter any trades. You can sometimes catch speeches live on Bloomberg TV which is available free online here (http://www.bloomberg.com/streams/video/LiveBTV200.asxx).
Range Bound Periods:
Sometimes a currency pair will fall into a tightly ranging period. A tightly ranging period is when the currency pair moves far below its ADR and seems to be stuck between two points. Earlier I gave you the ADR of GBP/JPY as 281 pips, in the image below we see GBP/JPY bouncing between two lines about 120 pips apart. At times like this I tend to saty out of the market. When the currency pair picks up again and starts trading at it’s ADR I will get back into the market. Sometimes I may enter but if I do my targets will certainly be much lower.
