paul.merriman wrote:Do the London and Frankfurt market open results tell us anything we can use for when the markets open in New York and then Chicago? General direction? Volatility? etc. I am just starting to learn FX, so sorry if this is a really OLD question!
Although many traders believe one can reasonably predict what will happen in the New York session based on what happened in previous sessions, I respectfully disagree with Dot. Even in situations where there is an absence of significant news, statistical correllations between the sessions are weak for the Euro and the Pound on one hand, and any of their countercurrencies (including the USD) on the other. Excursion studies do not indicate any predisposition toward general direction at the New York open -- or toward volatility for that matter -- based on the London and Frankfurt sessions. (Dot does highlight some very important things to think about going into the market, however.)
If you are a system trader, you should conduct your own volatility and excursion studies based on your trading strategy, method and time frames. Break your studies into segments by period length -- one month, one quarter, one year. For example, if you want to trade on the 15 minute time frame, collect data to get a picture of the day's price behavior as it cycles through each month, each quarter, and each year. Count continuations, consolidations and reversals and collate your data according to these periods. If you see any patterns, look for both internal and intermarket factors. For example, which months tend to be more volatile and which are less volatile, or which times of day tend to present exhaustion bars or candles, or when intraday attacks on significant support and resistance most often occur, or what the excursion of true reversal candles are on the one hour time frame or on the daily time frame for the EURUSD vs. the GBPUSD. This is *your* data. Ignore everything else anyone tells you.
You could pay for someone to research your questions for you, if you give them parameters. The super bright ones might even have some tricks to improve your own thought process going forward. The results, in any case, will probably tell you what you can and can't get away with in your methods, with respect to the idea of continuity between the sessions.
If you are a discretionary trader, you should keep a very detailed journal from 5am GMT to 5pm GMT, for at least three months, to document any observations that address your questions about price behavior. And periodically repeat the process after that, but at different times of year. Keep track of the following:
(1) Which players seem to have dominated price action in each session -- short term specs, institutional specs, corporates, or central banks, etc...,
(2) Interest rates and their one month and three month futures,
(3) Treasuries (US 10y in particular),
(4) Crude (light sweet in particular),
(5) Option expiries and volatilities,
(6) Order flows (including options barriers),
(7) Major support and resistance levels, and
(8) Other prevailing market themes, such as the Yen carry trade, that affect the underlying structure of the markets.
Keep all this information seperate from your trading journal. Also, spend a few months keeping track of what price actually does during the New York open in relation to the previous session. Keep annotated charts in a binder. (The ZigZag indicator on the one hour time frame is a very clear way to categorize price movement.) You might be surprised at what moves the market and by how much. You might also get a feel for the "noise," or what I like to think of as the struggle between greed and fear, on the smaller time frames.
It is important to keep this joural organized -- preferably in a format that lends itself to forming a database, because you will be inundated with information coming from alll directions after a few weeks. You'll need a way to focus on what is significant for your own approach.
After diligently studying this information, I am certain you will have an idea of your biases toward continuaton, consolidation and reversal for a given time and a given set of circumstances. You might even have a few ideas for profitable trading strategies and methods.
Until you have actually studied the spot markets yourself, you will simply be taking someone at their word and you will prolong your struggle to make any of that information tradable.
I'm assuming you don't work for a financial firm or a trading desk, so you won't have a mentor to guide you through the learning process. So, it's important to be thorough in your approach and in your research. Conducting either of these studies -- statistical or narrative -- will help form and justify your underlying beliefs about the market. Conducting periodic reviews will keep your beliefs in step with the market as it changes over time. From there, you can begin to form ideas about how to profit from that information and believe them with more conviction than if you read it in an article or hear it through the grapevine.
Cheers
