As forex traders, we're generally trying to develop trading systems based on patterns we see in price action or in momentum or other indicators. But, what if we took "time" into account as well? Here are a few time-based ideas to consider while you're pondering the markets and how you can profit from them.
All traders are looking for that edge. Regardless of what all the hyped-up websites say, forex trading is not an easy game. As individual retail traders, we're competing against the best minds, the most experienced and skilled traders in the world. If you looked at it logically, they hold all the cards, they have a big-brother view of what's going on in the markets every minute of the day. Does this mean we don't stand a chance? Not at all - we just need to be a little bit creative sometimes with our trading systems and we can beat them at this game. Also, read trading discipline which is also a most important skill for successful trading.
The majority of traders build or buy trading strategies that are based on price action and other indicators. A trend-following strategy often uses the cross-over of moving averages to indicate a signal to enter a trade. A break-out system is usually based on price breaking through a trend line. What if we ignored trend lines, moving averages, RSIs, MACDs and any other indicator which we pollute our charts with? What if we solely looked for patterns in time and we built trading strategies based on our findings?
Here are a few ideas for you to start with, but feel free to develop your own ideas and blaze your own trail. Also, read about the Trail stop loss in Forex.
- Look at the first few minutes of the trading session. For instance, if you're trading the New York session, then look at the first 10 to 15 minutes of the start of that session (8:30 NY time). Do you see any patterns or consistencies from one day to the next? Does price tend to keep moving in the same direction if a push is made during the first 5 minutes or the second 5 minutes of that session? Or, does it tend to move in the opposite direction if a false push is made within the first few minutes. Study the EUR/USD at the start of each session for a week or two and document what you find. Break it down into 5 minute lots to start with and see if you can find any patterns. Then, break it down even further, to 1 minute lots to see if there are other patterns. You only need to find something that happens more often than not. That puts the probabilities in your favor and allows you to develop a profitable strategy from your findings.
- Look for price movements in the last 5 minutes of an hour. Many trading strategies rely on the closing of a bar (often the hourly bar) to signal an entry. Sometimes the price is up and down like a yo-yo during the hour, then it makes a strong push in one direction or the other during the last 5 minutes of that hour. To study this, you might have to zoom into a 5-minute chart and draw vertical lines at each hourly point. See if you can find any common price action that seems to be related to the price action within the last 5 minutes of the hour. We also have training for building a foundation before a forex strategy matters.
- If you're trading a trend, let's say an uptrend, and you're attempting to buy at the dips in price, try to also take the time scale into account. For instance, as the trend goes up, price tends to move in waves, up and down, up and down in a steady upwards direction. Count the number of bars separating one wave bottom to another. Do this for at least 3 wave bottoms and calculate an average number of bars. When you're about to enter at a dip (bottom of a wave), see if it corresponds with the consistency in times that you've calculated so far. You might find that you're entering too early and it's best to wait for a bar or two before entering.
- Look at how price action flows through from one session to another. For instance, does the movement during the London session tend to continue through to the NY session, or does it go the opposite way?
These are a few time-based ideas for you to ponder while developing profitable trading strategies. I'm not saying to throw away all your chart indicators, but just be aware that you could greatly improve the probabilities of profitable trades by taking "time" into account as well.