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Day trading the market opening, specifically the first hour, is a favorite trading strategy of many currency traders because they can position their trades to capture major moves once the market opens. This makes the forex market opening strategy highly important.
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Why Trade the First Hour
Trading the market opening is a strategy that works really well when the market sentiment is particularly strong. Often the sentiment from the previous day will spill over into the new days trading, which usually translates in very strong and decisive market moves. Especially when there is no new data or news releases for the forex market to wait on, the market may continue to trade based on the sentiment that was created by previous news releases, economic realities and geo-political events.
Predicting where prices will go for the new trading day will also depend on whether the overall trading trend (bullish or bearish) remains intact and the strength of price movements.
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A Forex Market Opening Strategy to Trade the First Hour
Finding opportunities in trading the first hour after a market open involves identifying an instance where the sentiment is particularly high (whether bullish or bearish) and like to continue into the new day. Once that is established, one must determine what the support and resistance levels for the new trading day are likely to be.
Trading the market open, and the new trading day, can be accomplished by using a pivot point trading strategy. Finding the support and resistance levels, to day trade a currency pair, can be done by analyzing the charts, or by using the pivot point technical analysis indicator. Once the candle for the previous day closes, apply the pivot point indicator and observe where the support and resistance lines fall.[inlineImage||||]
- In Bullish Markets - If the market is bullish, consider setting take profit limit orders at the pivot point resistance lines (R1 and R2), and stop losses at the previous day’s lows.
- In Bearish Markets - If the market is bearish, consider setting take profit limit orders at the pivot point support lines (S1 and S2), and stop losses at the previous day’s highs.
Of course, if trading volumes are high and trader sentiment is strong, there might be an opportunity to make bigger profits if the market breaches the pivot point support and resistance lines and continues rallying or falling.
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What Time does the Forex Market Open
It is important to remember that the FX market is a 24-hour market. In essence it never closes, but trading tends to slow down significantly on the weekends, especially on Saturdays. This is thought to be the case because traders are away from their terminals and a large percentage of businesses, especially banks and other large financial institutions, are closed. The market tends to slow dramatically in their absence because they are responsible for handling most of the trading volume that moves the currency market.
However, the currency market is most active, and volumes the highest, from 3pm EST (GMT-5) on Sundays, to 3pm EST on Fridays, when the last major market (the US) closes. The first moves that occur on Sundays happen as businesses in Asia open for trading.
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Which Market Open to Trade?
It is important to remember that there are really three major trading sessions in the forex market. They are the London/European, New York and Australian/Asian sessions. Which of these sessions a day trader trades will depend, to a certain extent, on what time zone they are in and their trading preference.
However, the most active sessions tend to be the ones that handle the highest trade volumes; these are the New York and European sessions. Traders may want to consider trading the European market open (2am EST), or the New York market open (8am EST) to capture the first market moves. While someone living in the US may find it inconvenient to wake up at 2am to catch the Euro market open, it’s nonetheless a good time to trade.
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Market participants often trade the first hour because it gives them an opportunity to capture a major market move, or capitalize on price movements that are based on bullish or bearish sentiments from the previous day. Some traders will simply enter a short trade as soon as a bearish market opens, or a long trade in a bullish market, but a more technically sound forex market opening trading strategy is to use pivot points to identify the new day’s support and resistance levels and set take profit and stop loss targets at those levels.
For more tips and strategies, be sure to check out the other items in Bright Hub's Collection of Forex Trading Guides.
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Image: "Forex Trading - Trading the Market Open," contributed by the author. All rights reserved.