When Not to trade
Save your money and keep your nerves by not trading at the wrong time. While it is crucial to understand when is the best time to analyze the charts and make the bids. It is equally important to know when NOT to open positions.
There are two main characteristics of bad timing:
1-Low activity in the market (which you already studied about it)
2-Chaotic direction of trades
An inactive (often called “Thin”) market offers smaller movements of rates, thus smaller potential profits. A thin market also comes with higher commissions (spreads) for each trade due to the decreased liquidity. In simple words; if you want to sell a currency, it is harder to find potential buyers, so the commission goes up.
So here are some examples of when you should at least be careful when trading:
Friday afternoon & weekends
The activity usually slows down in the second half of Friday mainly because of the big banks and hedge funds are closing their positions for the weekend. This is mostly done for security reasons; they don’t want to have their large positions left open without sufficient supervision.
The biggest risk of leaving positions open for the weekend is called “the weekend gap“. When bigger rate swings occur while the systems are not recording them, the stop-loss orders might not be executed correctly and can create problems. that’s why most traders don’t leave open positions over the weekend.
Trading session closing time
When the trading sessions are closing, the rates and liquidity can swing wildly resulting in slips, high spreads and overall losses.
Important news events
Traders should avoid trading when major economic numbers are released (central bank announcements, monthly employment reports, etc) as these events can move markets in unpredictable directions and create risks if the news differs from the previous direction/sentiment of the overall trend. That’s why we are checking Economic calendars regularly to avoid such situations.
Trading usually slows down during the major holidays. So before trading, it is wise to mark on your calendar the major holidays of the countries whose currencies you plan to trade.
Primetime TV events
World championships in football, NBA, NHL, Superbowl finals, The X-Factor, etc can create the same effect as the holidays. We won’t find these events in the economic calendars, so a TV program guide can also be a useful tool for a trader.
Traders, especially beginners, should be careful trading during the Asian sessions as their market activity is usually low relative to the major sessions. This results in higher spreads and smaller average gains.
When angry or frustrated
A golden rule of trading is to stop trading when angry or overly excited. Trading during elevated emotional states usually ends badly because it affects people’s mental sharpness. You must be calm and collected when trading.
Many forex brokers charge fees for leaving the positions overnight. Checki your broker’s policy on overnights before trading!