Should You Have Strict Rules For When You Trade?

When you learn about fundamentals and sentiment, you often know the right time to trade. But when it comes to strict rules, typically it’s down to you as an individual trader.
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An experienced currency analyst that specialises in short term sentiment and news driven trading.
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Latest posts by Arno Venter (see all)

We have a quick question from Sakeem, who asks whether we have any set rules on the timing of trades during the day or the sessions we trade, for example do we ever look for trades during the Asian session and is cutting off your trades after the London session a good thing to do?

Thanks for the question Sakeem, and the answer is probably more focused on each individual trader more than anything else, but let me explain some caveats first.

Obviously, learning about the fundamentals and market sentiment, you know that the very best time to trade, from an intraday point of view, is when there is a valid to take in the first place, a good example of that was today when we had the dovish comments hitting the wires from Governor Lowe that sent the AUD tumbling, if you were trading at that time you could have traded that without any reservations during the Asia-Pac session, so the best time is really when there’s a reason to be trading from a sentiment or fundamental point of view.

So, in that sense, there isn’t really any perfect trading session, but having said that, of course there is a reason why so many traders prefer trading during the London session because of economic data hitting the wires from both the EU and the US, it has much more liquidity and volume so there is lower spreads during that time, and then you have the cross over period where both EU and US traders are at their desks which creates some of the best trading conditions.

So, to you questions, do I have set rules for the session or day? Well, I used to get up a horrid hours of the morning to be able to trade Aussie and Kiwi data or Chinese data, and after a while I just decided that getting better sleep is more beneficial for my trading than getting up for a potential trade at 03:00 in the morning, but of course having said that, if I weren’t as lucky as I am to be in the London session timezone during my regular 07:00am to 18:00pm day, and stayed in Asia for example I would probably make the effort to be up for important data points and be up for FOMC meetings and ECB meetings etc.

So, I am lucky that the most liquid trading session just happens to fall right in line with regular work hours. Now, on that note, there are some regular times during the day where I would be more cautious to trade something, such as the London Open or the US Cash open for example, as new orders hit the markets there is always a bit of additional volatility during those times so I prefer to stay clear of taking a new trade just before that happens, if I can avoid it at least, if it’s something that just a no brainer trade and might not be effected by swings in risk sentiment too much I would probably enter anyway.

On the second part of your question, on whether it’s a good idea to close out a trade as the session ends. It really does depend firstly on the type of trade you are taking, if you are taking a trade that’s based on a solid fundamental or sentiment premise, then there is nothing wrong in letting the trade run into the next session. However, I prefer closing some trades if they are risk sensitive when I know I can’t be at the desk, if it’s a trade that I am planning to run for longer than a day then it of course doesn’t matter at all. But, if it’s something like a risk sentiment based trade, depending on the strength of the sentiment, thus depending on the catalyst or rather importance of the catalyst driving that move, I would probably just look to close the trade when I am not around, or at least move the trade to break even and see how it plays out for the rest of the session on my phone.

So, hope that helps Sakeem, any other questions please don’t hesitate to let me know.

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Thanks Arno for the advice