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C H A P T E R 7 Around the World Effective order entry will allow you to walk away! 2006 “Fxstreet.com. The Forex Market.” All Rights Reserved. et’s preface this next discussion with the fact that many of us have attended oneofthemany travelingshows thatcometoourtowntalk-ing to us about forex trading and the wonderful world of this 24-hour market. If you are expecting me to bash these, I’m not. If you were intro-duced to this market by some such presentation, well then, that was worth your time and you had the knowledge to go out and seek more knowl-edge, which no matter who it comes from, can be a valuable gift—if you know what to do with it. If you bought the course, software, book, DVD, 73 74 FOREX ON FIVE HOURS A WEEK whatever, I’m quite certain no one put a gun to your head. So let’s move on. It’s a fresh start. Two of the most compelling features of the forex and the ones most touted are the 24-hour trading time of the foreign exchange and the fact that it is the largest market in the world. Both in fact are true but exagger-ated. How about the fact that there is always a bullish market in the forex? Also true, but you need to find the pair that is trending higher. If you were to ask me what the biggest misconception most traders have about this market, the one thing that is completely overused and mis-understood,it’sthatthismarkettrades24hoursaday.Now what a minute, Raghee, you just said that was true! And you’re right, I did. But let’s clarify right now—all 24 hours are not created equal. WHO’S AWAKE? This is the first question to ask before you put on a trade, before you be-gin your analysis, and is a key to understanding follow-through and order entry. This was not necessarily a common train of thought for those of you who are making the transition to the forex market from the futures or stock market as I did back around 1999–2000. We knew when the market opened and closed; heck, they rang a bell to let us know! We knew what was an illiquid pre- and post-market, and we know when most of the volume oc-curred. For those of you not making this transition, you were wide-eyed listening to the speaker explain how you could come home, hit a few keys, look at the market, and execute your trades before heading off to work or after dinner. Well, it’s not untrue, but it’s not the whole story either. I’m sure you’ve heard about your buddy or a friend of a friend who gets up at 2 A.M. EST to trade the markets as Europe and the U.K. begin trading. And now you’re thinking 2 A.M.? I can’t get up at 2 A.M.! Well, here’s the skinny. I don’t, and you don’t have to either. It’s a choice you can make, and heck, if you live outside the United States these may very well be your regular trading hours, but for most traders in the United States it’s a fright-eningly early part of the morning reserved for new parents whose newborn still doesn’t sleep through the night. By the way, I have received many e-mails from new parents who have said that getting up with their baby is a great way to trade the forex. All I say to that is you can never start teaching your kids about the markets too early! “Who’s awake?” is the rule by which you will govern your trading ac-tivities. Just because a trading time is convenient doesn’t make it effective. One financial center is not necessarily equal to another in importance or Around the World 75 size. These are the financial centers that I keep on my desktop. I use a program called the World Tick Time Zone Clock. It’s about $20 last time I checked, and it allows me to put multiple, floating clocks on my desktop. You can go to www.thirtydaysoftrading.com to download a free trial that is set to my specifications. You don’t need this if you have another program that will do it for you, and it’s certainly easier and cheaper than running out and buying six clocks. When you sit down to trade, you must ask yourself which of the fol-lowing six financial centers is open for the trading day. Let’s first define what “trading day” is because it’s how you will know when the active part of the work day is in each city you track. People are people. If you’ve done any amount of traveling, this becomes clear. No matter where you go we are all actually very similar in our habits and beliefs. The workday is no different. People in Tokyo more or less start work at 7 A.M. to 8 A.M. and wind down their day between 5 P.M. and 6 P.M. This is no different in New York, London, Frankfurt, Hong Kong, Singapore, or Sydney. And not too coincidentally, those are the main financial centers I keep track of. So when you are sitting down at your computer, before you even begin analyzing any chart, you must know who is up and trading the markets. Which financial center or centers are active, which are going to be active, which are getting ready to call it a day? If the markets are open 24 hours, we know that there are shifts from one country to another as they begin their work day. This shift must be accounted for. In fact, one of my opening range strategies looks to capitalize on this opening. While the forex market does not close, humans in a sense do. We go home, eat, and sleep. Opening, lunch time, and closing time are worldwide, city-by-city realities we must acknowledge. Let’sbreakdowneachfinancialcenterandgetanideaofwhoismoving the market and when. FINANCIAL CENTERS YOU NEED TO KNOW Beginning with Sydney, as it is the first new look at the coming day, the forex market “opens” with the country of Australia, and so we focus on its importance as the initial opinion of the day. It’s not the largest financial center by any means, but the first look of the day should not be ignored. Sunday afternoon New York time is the first look most traders have at the coming week, and brokerages in the United States open and allow traders to enter trades. Now I cannot account for the many brokerages around the world, but Sydney still represents the beginning of a brand new week no matter where you live. So starting with Sydney we move on to Tokyo. 76 FOREX ON FIVE HOURS A WEEK Once Tokyo opens, you have a more significant Asian open, and this also creates the first market overlap. This means you have two major fi-nancial centers open and trading at the same time. Remember the only reason the forex market is a 24-hour market is that as one financial center closes you have another opening or preparing to open, and this accounts for the 24-hour liquidity. This concept of market overlap is a very impor-tant one because participation of multiple financial centers is what makes the trading during those hours more liquid and also more significant. The more people that are awake and trading during certain hours, the better it reflects a broader market psychology. Once Tokyo opens or more accurately put, becomes active, one hour after Sydney, there is only Hong Kong and Singapore left to complete a full representation of the Asian session. Hong Kong and Singapore are in the same time zone, but both represent major financial centers, so I mention both. Realize that it takes just two hours for the Asian session to go into full swing once Sydney opens. But, alas, the Asian session currently only accounts for approximately 10 percent of daily turnover and thus does not even come close to being a major reflection of the trading day that is still to come. I have to say that as I am on the east coast of the United States, I think in east coast time. I am however going to mention that most of the time you will see time represented in Greenwich Mean Time (GMT) when you look at most forex tools and sites. And that’s fine just as long as you realize that GMT is basically London time and London trading hours are the most important in the forex universe. In fact, London is the 800 pound gorilla among the financial centers. GMT is also commonly referred to as UTC or Universal Coordinated Time. Regardless of what it is called, GMT gets its name from the solar time at the Royal Observatory in Greenwich, London. So don’t worry when you see GMT, just think London. London is one hour behind Frankfurt and five hours ahead of New York. London is the financial capital of the world to many. Sure Chicago is the center of the commodities world and certainly New York is the center of the equities world, but to forex traders, the European and U.K. session, represented by Frankfurt and London, are the most important. And yet I tell you that you don’t have to get up and trade with these giants. Let me explain. PRIME TIME! Prime time is the overlap between Frankfurt, London, and New York. It occurs between the hours of 7 A.M. EST (early) and 1 P.M. EST (late). That represents noon to 6 P.M. EST in London. Around the World 77 Now to give an idea of why these five hours are the meat and pota-toes of the forex trading day I have to get into which pairs are by far the most actively traded. I’ll preface this discussion by saying that this does not reflect the fact that I live in the United States. It reflects trading ac-tivity and trading activity alone. Not my trading activity, but the vast ma-jority of traders around the world. According to the Bank of International Settlements, the most actively traded pairs are the EUR/USD (“fiber”), the USD/JPY (“dollar-yen”) and the GBP/USD (“cable”). The next three pairs round out the top six most actively traded pairs: the USD/CHF (“swissy”), AUD/USD (“aussie”), and the USD/CAD (“loonie” or “canada”). By the way, as I mentioned earlier, traders shorten everything and give it a nickname. Apparently we can’t help it. So to keep you from sounding like a complete “noob” (that’s short for newbie or rank beginner) let me bring you in on trader-speak. Right off the bat, if you are referring to any pair that trades 1.xxxx, just drop the “1” when you are talking about it. So when you are telling someone about the EUR/USD trading at 1.2765, you’ll just say “the fiber is trading at 2765.” Got it? Now, of course, when you are placing a trade, say it properly. Full quotes only! Every pair seems to have a nickname and some have more than one. You’ll hear the familiar “greenback” nickname for the U.S. dollar. The greenback nickname comes from when U.S. Demand Notes created by Abraham Lincoln to finance the Civil War were printed in black and green on the back side: greenback. The pound sterling—not the pair but the pound sterling itself—is referred to as “quid” named so from the Royal Mint in Quidhampton or the Latin “quid pro quo” meaning “what for what” as an exchange of goods for currency. Either way, “quid” it is. The “loonie” can mean the U.S. dollar/Canadian dollar pair or the Canadian dollar itself. It comes from the picture of a loon on the back side of a one dollar coin. The name “loonie” is so well known as reference of Canadian currency that the Royal Canadian Mint secured the rights to the name loonie. The “cable,” which is the nickname for the GBP/USD comes from the Transatlantic Cable laid in mid-1800s that linked the United States and the United Kingdom by telegraph. Through this un-derwater cable, currency prices would be sent between New York and London. The nickname for the EUR/USD, “fiber” is a little more difficult to pinpoint. First of all, it’s not that commonly used, but I personally think it is a good habit not to call the EUR/USD the “euro” as a nickname for the cur-rency since there is actually a “euro” currency and this can be confused for the single currency versus reference to the pair. The “fiber” comes I think in part from “fiber optic cable” in much the same vein as the GBP/USD is called the cable, and also in part from the security thread that is woven into the center of a euro note, or perhaps and more likely is the fact that the paper for the euro banknote is 100 percent pure cotton fiber. There you have it, two good and one very obvious reason to refer to the EUR/USD as the fiber. You got your nickname background, now go use ’em! ... - tailieumienphi.vn
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