Every trend must come to an and. It can happen in a climatic fashion, or in a series of smaller and smaller moves. Trends can be very long or extremely short and this applies to any time frame. By trend length I mean number of bars, or candles. In currency trading we also see very well defined trends during specific session (Asian, European, US) and daily trends. Those would be directional moves, lasting more than one session. Such was the case yesterday with GBP pairs. Pound moved down decisively and remained in strong down trend all day. Even though Forex is 24H a day market, trading is not equally active all that time. Most of the time liquidity and activity drops at around 10-11 AM PST(my location). This is the time when daily trends tend to come to an end, and some bounce or easing can be expected. That was the reason why yesterday I entered into the long GBP-JPY transaction. This is what happened.
Chances were good that by that time we had seen the low for the day. Price moved slowly sideways(by comparison with the preceding plunge) and than crept up. My expectations were for a more meaningful bounce, to 142(greed ) but that didn’t happen. About 8 hours after entry position was closed for 91 pips gain. Next day was starting and new dynamic expected, so my trade, based on end of day correctional move, had to be closed. By comparison, Tuesday(today) didn’t exhibit a daily trend(well, sideways). It is common for most currency pairs to run out of steam at around 11AM PST(give or take an hour) and have some sort of reversal.
Reserve Bank of Australia cut rates but 100 points and it now stands at 4.25%, move that was widely expected. RBA, unlike many other ones, at least has some more distance before it gets to 0%. AUD has been getting weaker in tandem with GBP but perhaps it is ready to show some strength. I will try buying AUD-JPY.
I plan to enter a long position at 60.72 with a moderate objective of 61.50. I’m going to pursue it with some diligence. If the price gets lower, as it is doing right now, I’ll keep moving this order down to just above latest minor high. Depending on how busy I get when I resume trading, I might even zoom in to 15 M charts, but no smaller. This would mean maybe smaller target but higher probability for a trade. We will find out in the next post.
Mike K.
Have been following your blog with interest for about a fortnight now. Like the fact that you post trades before they happen and don’t hide loosers. It is indeed true that a lot of daily trends come to an end at around 20 GMT. However, find it difficult to incorporate this knowleadge into a viable trading strategy. Any thoughts would be appreciated.
Hi Alex. I’m not sure you can have a system based on this one fact alone. What I use this for, most of the time, is to exit trades around 11 AM PST if the target is not hit. It is just another piece of the puzzle.
You are likely right. During my testing I asumed market reversal, rather than simply, how you put it, trend exhaustion. This would change how big the moves can be.
thanks.
Over the years i noticed that these kind of obcervations, even though correct, fail to make money on systematic bases. So they have be part of bigger plan.
Yen has been getting stronger again. Have you heard anything about intervention?
Silence from BOJ. That’s why intervention might easily happen if yen rally continues. Unfotunately, i doubt BOJ will give us a call and says “heads up, here it comes.”
Looks like waiting game with this trade. Something like this puts my nerves to the test.
That is the way it is sometimes.