Trading When the Market Never Closes

08/15/2011 3:30 pm EST

Focus: FOREX

Stanley Dash

Vice President of Applied Technical Analysis, TradeStation

Currency markets trade constantly, says Stanley Dash, but understanding risk at various times and across different regions can help traders select the best pairs to trade and limit their risk.

My guest is Stanley Dash and we’re talking about 24-hour trading. Certainly in the currency market, it is around the clock. Stanley, how do you manage the risk and the opportunities that are presented with 24-hour trading?

It is interesting that these markets are the true 24-hour markets. We look at certain other markets that are open electronically here in the US—many of the futures markets—and they’re open at night, for instance, if you trade S&P futures, but the stock market here is not open.

When we look at forex, those are true 24-hour markets. We look at pairs based on European economies, North American, Asian economies. At Tradestation, we really encourage people to look at their trading and organize it properly. We tell them that just because (a market) is open 24 hours, it doesn’t mean they can—or should—trade it 24 hours, both for their own financial well being, and psychological well being, for that matter.

We were talking with some clients recently and discussing with them how to break down the 24-hour day. Forex traders know there is a primary US session, an Asian session, and a European session. There is some overlap as the world turns, but if you’re going to be a trader at a certain time of the day, you have to understand the “pulse” at that time of the day.

What are the volatilities at that time of the day, and for which particular currency pairs would that time of the day be the best for trading?

So someone, for instance, who has a profession, and they spend a certain part of the day on their regular profession, but then focus on their trading at another time of the day, they have to think about where is the world at that time of the day and break down the 24-hour session.

Start with the around the clock. Where is the first trading session?

Well, really London is considered the world center for forex trading, so I’ll use London as the benchmark. Those of us in the US use a New York benchmark for 5:00 pm as the start of the day, so in some sense, it’s cyclical and the answer is there is no answer. And in some sense, maybe Asia starts the day with respect to the fact that London is the primary world center for forex trading.

There is some overlap in the US/Europe session just because of the times of the day, and then that Asia session that we consider as really separate from the US and Europe sessions.

That’s why I was saying a trader who may be trading in the US—let’s say generally in the evening in the US—should perhaps pay more attention to the Asia session.

That trader may want to pay a little more attention to New Zealand, to Australia, to Japan. The idea is that those home countries, their banking day is happening right then and there, and you get maybe the best liquidity and volatility at those times of the day. And we at TradeStation try to help people in doing those studies and understanding and breaking down the day.

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