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How to Trade on Forex on Fridays

3:41 AM Feb 16, 2020
945
Forex trading

Friday is a special time for all market participants. Most traders close their positions and prepare for the upcoming weekend. Due to the unique behavior of market participants at this time, you should definitely have a separate trading plan on Friday.

Let’s discuss the basic techniques and rules of Friday trading. You’ll learn when it is better to close positions, whether to leave them open for the weekend, how Friday signals might influence the Monday market and so on. Let's get started.

When to Quit Trading on Friday

It is important to prepare for market closure in advance. Make sure to check what time your broker stops trading. For example, FXCL closes access to the market at 23:00 Server Time. The exact time is usually indicated on the broker's Trading Terms page. Since companies are usually guided by server time, learn in advance how much it differs from your time zone.

Often, trading on Friday is worth ending earlier. This is due to the major economic news releases. For example, once a month at 15:30 or 16:30 GMT, the USA publishes the Nonfarm Payrolls data. At this time, it is better to avoid trading altogether and close all transactions one hour before the news release.

Start your every morning, especially on Friday, by checking the economic calendar for the upcoming news with a high impact on the market. If you don’t have a special trading strategy in stock for such periods, close your positions in advance and safely leave for the weekend.

The Influence of the Friday Trend to the Market on Monday

Pay attention to the price movement during the European and American sessions on Friday. If major Forex players do not expect significant changes over the weekend, they will actively buy or sell. This might lead to the formation of upward or downward momentum.

Since the majority of Forex participants are intraday traders, the bulk of positions in the foreign exchange market are closed on Friday. As a rule, those major players stay in the market. Such traders often have inside information that is not available to retail Forex participants. In addition, they have enormous resources. That is why they boldly leave open positions for the weekend. They are ready to accept any risks involved and pay the set swaps.

The actions of such traders have a great influence on the formation of momentums in the market. Therefore, if on Friday you notice a pronounced bullish or bearish trend in the afternoon, then it will most likely continue on Monday. The influence of large players can also be traced to the formation of weekly and daily candles. On Monday you can enter the market based on those signals.

Trading on Friday by a Weekly Candle

As a rule, by the end of the week, most traders have already decided on their mood. That is why on Friday afternoon you can build your trading strategy based on a weekly candle. Switch to the W1 chart and open trades based on the formed candles. With high probability, the price is not going to change its direction.

Let's look at a couple of examples:

  • The presence of an engulfing candle with a large body and short shadows indicates that the price will most likely continue to move in the current direction. A bullish candle indicates that the pair will continue to grow; a bearish candle tells us that the pair will drop. For example, the presence of a bullish engulfing candle in the middle of the day shows that most likely you won’t find any worthy sell trades for the rest of the day.
  • The presence of a downward candle with a long tail, on the contrary, indicates that the bulls have lost strength and the price will continue to decline until the end of the day. It's time for the bears to look for suitable entry points, as the pair is unlikely to grow this week.
  • If you notice an uncertain candle on the chart, such as a Doji, then you cannot predict the exact price movement.

Formation of a Trading Setup on a Daily Candle on Friday

Sometimes you can notice a trading signal on a daily candle on Friday. The trading setup meets all the requirements of your trading plan. What should you do in this case?

The answer remains the same - you shouldn’t leave your positions open on the weekend so ignore the signal on Friday and use it on Monday. Why you should act this way:

  1. The market might form a gap during the weekend and all your Stop Loss levels will not work out. You might lose a lot of money if the price moves against you.
  2. Your position might experience the slippage that often happens during this period.

How to proceed? The answer is simple:

  1. In case you have a gap on the chart on Monday trade that gap.
  2. If there is no gap, then open a trade based on the trading setup you have found on Friday.

To Summarize

Most traders want to spend a relaxed weekend without worrying about their open positions. That is why they close all their transactions at the end of the day on Friday and return to the market only on Monday. You should do the same.

However, it is worth noticing that the mass closure of orders can cause a small pullback on the chart. Meaning, when the bulls begin to protect their profits at the end of Friday, the price might slightly drop even with a clearly growing trend. Keep this in mind if you leave your trades open until the bitter end.

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