Everyone wants to know where to buy or sell a particular market.
Is the 1.1800 area primed for a short or should you wait for 1.1900?
But the truth is, trading is as much about knowing when not to trade as it is knowing where to enter a position.
That may sound like the same thing at first, but I assure you it isn’t.
For instance, the EURUSD may have formed the perfect bearish pin bar at resistance, but if it occurs right before an ECB rate decision, it isn’t the right time to trade.
The location of the signal was spot on, but the timing was off.
Before I scare you off with yet another factor you need to consider, let me tell you that it isn’t all that difficult. In this post I’m going to share three times when sitting on the sideline may be the wise choice, as well as which are my favorite days to trade.
I’ll also share a few questions to ask yourself to make sure your mental game is on point.
Read on to learn the best and worst times to trade Forex.
1. Immediately Before or After High-Impact NewsRoad sign for market volatilityAs traders, volatility is what makes us money. You can’t profit from a market that never moves.
We’ve all been in one of those positions that takes off almost immediately in our favor and doesn’t want to stop. And after two days of traveling 300 pips, we’re left with a boatload of cash.
Those are good weeks. But they can also be incredibly dangerous, especially for the novice trader.
You witness how an increase in volatility can produce profits out of thin air.
On the surface it all seems quite innocent. After all, what’s wrong with observing that higher volatility equals greater profits?
Ah, now you see where I’m going with this. You know that news, particularly high-impact events like rate decisions and non-farm payroll, trigger volatile conditions.
If you have attempted trading events like these, you know how dangerous it can be. Yes, volatility can make us money, but attempting to trade an event that has a random outcome and market response isn’t the way to go about it.
It also goes against what we do as price action traders. Our trading edge comes from signals the market generates on the higher time frames, namely the daily charts.
There’s no edge in trading the news. That goes for entering a position immediately before or after an event.
Even if the market behaves and moves in your favor, you’ll likely be stopped out before you can realize any profit.
So what’s the solution?
Wait for the session to close at 5 pm EST before making any further considerations.
That’s it! I call this the settlement period, and it occurs each and every trading day between 4 pm and 5 pm EST.
And if you are trading the 4-hour chart, wait for the next 4-hour candle to close before even thinking of committing any capital.
The simple act of waiting for the next daily or 4-hour candle to close has kept me out of more dangerous situations than I can count.
Notice that I said simple and not easy.
There’s nothing complicated about waiting for a candle to close. Anyone can understand the concept.
The difficult part is having the patience and discipline to actually wait.
Know that just because the market is moving, it doesn’t mean you have to trade it. The little-known truth is that 99% of the volatility you see every single day is just a trap waiting for the unsuspecting trader.
Quality setups don’t come around often, but when they do, you have to be ready. If you’re chasing volatility every day, you won’t be ready.
2. The First and Last Day of the WeekChalk board showing days of weekThe first 24 hours of each new trading week is usually relatively slow. Market participants are just getting back online after their 48-hour hiatus.
It’s also when the markets are figuring out which direction they should head for the coming week.
With this in mind, I tend to stay on the sideline each Monday—unless I already have an established position from previous weeks, of course.
On the other end of the spectrum, we have Fridays.
The final 24 hours of the trading week is often marked by lower liquidity. As you may well know, technical analysis works better in highly liquid markets. That’s one reason I switched from equities to Forex back in 2007.
Moreover, I don’t like taking on new risk before the weekend. The Forex market can sometimes gap quite aggressively at the week’s open, and I don’t want to get caught on the wrong side of a Monday gap.
Between these two days, Friday is the worst offender in my opinion. The idea of opening a new position in front of a 48-hour window where I’m helpless to do anything but watch doesn’t sit well with me.
So there you have it, Mondays and Fridays are the two worst days to trade, with the latter being even worse than the former.
By the process of elimination, you can see that I like to open new positions between Tuesday and Thursday. I’ve found that the best setups occur during these three days.
By this time, market participants have settled in for the week. It’s also far enough from the weekend to cut your losses if the market moves against you.
To wrap up, here’s how I approach this…
Any quality setup that occurs between Tuesday and Thursday is fair game.
I will sometimes trade on Monday, but the setup has to be top notch. It needs to be so good that I would have to be crazy to pass it up.
Fridays are off limits in my book. You’re better off waiting until Monday to reassess the situation. That way you don’t need to worry about the market gapping against your position at the start of the new week.
3. When You Aren't in the Right Mental StateMan feeling stressed and tiredTrading is a game of mental discipline. Those who can keep their emotions under control come out ahead.
We know what happens to those who can’t.
But no matter how disciplined and controlled you become, there will always be ‘those days’. I’m sure you know the ones I’m referring to here.
Maybe you aren’t feeling well or didn’t get a good night’s sleep. It could also be that you’re busy with other tasks which means your thoughts are elsewhere for the day.
Another dangerous scenario would be a losing streak. If you have lost the last three or four trades, chances are your emotions are on high alert.
Whatever the case, if you aren’t feeling up to the task of trading, then don’t!
There’s no rule that says you must trade today. Even if there is an A+ setup sitting right in front of you, some time away from your charts may not be a bad idea. In fact, it usually helps immensely if you aren’t feeling up to the task.
And if you’ve experienced a losing streak, one of the best things you can do is to take a break. Once you come back, try risking half of your normal position size until your confidence returns.
Final WordsKnowing when to trade, and when not to, is critical as a trader. It will help keep your capital safe when conditions are volatile or markets are illiquid and capitalize when the time is right.
One of the worst times for placing trades is immediately before or after high-impact news. These events range from central bank rate decisions to non-farm payroll.
By waiting for the session to close at 5 pm EST, you avoid the ‘chop’ that often occurs around these events. I would estimate that 90% of the setups I take occur on the daily time frame. The rest happen on the 4-hour chart.
Another time to avoid is the first and last day of the week, with Friday being the worst offender of the two. Taking on risk ahead of the weekend can be a risky endeavor. As for Monday, markets can be indecisive as traders recover from the weekend lull.
Trading is a mental game. I would argue that it’s 80% mindset and 20% mechanical. So if you aren’t feeling at the top of your game, take a seat on the sideline. It’s better to miss a setup or two than to risk a costly emotional meltdown.
I have found that Tuesday through Thursday are the best days to trade. Just remember to not enter a position immediately before or after high-impact news. And last but not least, make sure your mental game is on point before risking any capital.
