In order to be an effective trader you must have an understanding of what can affect FX rates trading and how they can affect your trading. When you are aware of these factors you may be able to compensate for them when you trade. You will also be able to avoid any negative influences that may arise.
The influence of the large FX rates traders
There are a number of different types of trader on the FX rates market. Some of these traders have more impact on the FX rates market than others. It is important that you understand the impact that the heavy hitters of the market can have. The heavy hitters of the forex market are banks, hedge funds and large corporations. These traders will move large volumes in a single trade, which can seriously affect the way the market moves.
When you are trading you have to consider what market session you are trading in, and which heavy hitter will be online. If you are trading in the London session you have to consider what the European traders are doing. You also have to be aware if the overlap period of the London and New York session.
Friday trading on the market
Just before the market closes for the weekend there will be a flurry of trades. This is due to many traders not wanting to hold their trades over the weekend. As the market is closed over the weekend you are not able to make changes to the trade in relation to what is happening in the world. This means that on Monday when the market opens your trade could have charged completely.
Late on Friday many traders will close their trades and this can cause some interesting patterns in the market. It is recommended that you not trade at this time because these patterns cannot be predicted.
Monday trading on the market
Monday trading can be just as dangerous as Friday trading. Monday is when the market opens for the week and you will see a number of false trends in the market. Over the weekend traders have planned what they are going to do. There are also many heavy hitters that have to put through transactions that could not be done over the weekend. This causes a lot of fluctuations in price and these are very unpredictable. It is recommended that retail traders do not trade first thing on a Monday morning, but rather wait for the market to settle.
The lulls in the forex rates market
There are certain hours and days when the market when the largest number of traders are one the market. However, there are also times when the market has the lowest amount of traders on it. It is important that you have a general idea of when these times are because they can affect the way you trade.
When there is a lull in the market this also means that there is less liquidity in the market. This can be dangerous as a large trade by a single heavy hitter could create an unexpected trend in the market. Knowing when the lulls in the market may come is best so you can prepare to either not trade at these times or buffer your trades for potential swings.