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How to Avoid Dangerous Situations in the Market

9:55 PM Dec 19, 2019
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Every day, each Forex participant has to catch a perfect moment to enter the market. Yes, the number of your correct moves will grow with time. But not only these decisions make you successful. An experienced Forex participant is not only capable of entering the trade on time but also knows when to stay away from the market.

We are all aware that the currency market behaves unpredictably all the time. Nevertheless, there are periods when trading becomes especially dangerous to a huge amount of false signals, fake breakouts, slippages, and gaps. Amid all this market noise, you can’t make the right decision with a 100% certainty. Let's look at situations in which it is best to avoid any action, and find out at what time your trades can bring the highest results.

What You Shouldn’t Do

The FX market is open round the clock but trading is not equally profitable during the day. There are factors that strongly influence market liquidity and can cause unpredictable price fluctuations. At such moments, even the most experienced traders try to avoid the market as trading turns more into gambling.

To avoid excessive and absolutely unnecessary risks, you shouldn’t take the following actions:

  1. Trade during high impact news releases
  2. Trade during bank holidays
  3. Trade during central bank announcements
  4. Trade during low liquidity
  5. Keep trading after a losing streak

Trade During High Impact News Releases

Often, the market is affected not by the events themselves but by the reaction of traders to those events. After the release of important world news, thousands of traders instantly enter the market. At such moments the charts might go crazy. The price can move hundreds of points in a single moment and if you failed to predict the correct direction, you can lose a huge amount in just one trade. Since you can’t know for sure where the price will move it is wise to avoid trading at all.

An abundant reaction to the release of some important news, such as Non-Farm Payrolls and Fed Rate Decisions, begins even before the actual event. Many experienced traders avoid the market 24 to 48 hours prior to such news releases.

Trade During Bank Holidays

Regular traders are not the only market participants. The largest players on Forex are central banks. They have the greatest impact on market liquidity. Therefore, in the days when central banks are closed, liquidity can drop sharply and the floating spread can increase. If you are a scalper or a day trader then due to the large number of short positions you open, your trading costs can grow significantly. Before you open your first trade in the morning, check whether the central bank of the country of your trading currency is not closed for the holiday.

Trade During Central Bank Announcements

The decisions and actions of the central banks might significantly influence the market as well. What you should pay attention to:

  • Interest rate outlooks
  • Interest rate changes
  • Official statements and press conferences of bank representatives
  • Speeches of Central Banks Chairmen
  • Board Meetings

These events are marked in most economic calendars. Add them to your personal trading calendar and try to avoid the market during these periods.

Trade During Low Liquidity

I’ve mentioned before that during low liquidity in the market, the cost of each trade can increase sharply due to the widened spread. This applies not only to central bank holidays. Some trading sessions tend to have lower liquidity than others.

There are 4 main trading sessions:

  1. Tokyo session
  2. Australian session
  3. London session
  4. New York session

London and New York sessions have the highest liquidity. Asian sessions show lower results. If you trade short positions, then you should try to stick to more liquid sessions. Otherwise, the transaction costs will never pay off for you.

Keep Trading After a Losing Streak

If your trading process didn’t work out in the morning and you opened several unsuccessful positions in a row, it is best for you to avoid the market until the next day. In such a situation, it is in human nature to try to prove something to both themselves and the market, which leads to excessive trading and a number of reckless decisions.

Trades out of revenge have not yet ended up in anything good. If you are unlucky today better go and clear your head. Have a cup of tea, go for a walk, or spend some time with your friends and family. Do whatever calms you the most. And the next day, return to the market with fresh strength and pure thoughts.

What You Should Do

From the foregoing, you can draw fairly simple conclusions about what exactly you should do:

  1. Give preference to trading at the intersection of the London and New York sessions - 13:00 GMT to 16:00 GMT.
  2. Trade only on a clear head without any emotions involved.
  3. Always use the economic calendar. Check it every Sunday for the upcoming week and every morning for the current day.

A well-thought-out plan will help you to avoid unfavorable time for trading. Make it a habit or a part of your routine to mark all periods and events when it is best for you to close your charts and avoid trading. This way you will make the Forex market a little more predictable and favorable for you.

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