Forex traders often tailor their strategies to take advantage of specific trading session times and overlaps to optimize their profits. Here are some strategies that can be employed during various forex market hours:
1. Breakout Trading
Description
This strategy involves identifying key support and resistance levels and placing trades when the price breaks through these points.
Application during overlaps
During overlaps — like the London / New York overlap — traders can expect significant price movements. When the price breaks above resistance or below support, traders enter positions in the direction of the breakout.
Tools
Use technical indicators such as Bollinger Bands or trend lines to identify breakouts.
2. Scalping
Description
Scalping is a short-term strategy that involves making a large number of trades to capture small price movements.
Application during overlaps
The increased volatility and liquidity during session overlaps create ideal conditions for scalping. Traders can exploit small fluctuations in price with tight spreads, aiming for quick profits.
Tools
Use a 1-minute or 5-minute chart with indicators like the RSI or moving averages to find entry and exit points rapidly.
3. Trend following
Description
This strategy capitalizes on existing market trends, aiming to enter trades in the direction of the prevailing market movement.
Application during overlaps
During periods of high activity like the London and New York overlap, strong trends may form. Traders look for confirmation signals (like moving average crossovers) to enter trades that follow the trend.
Tools
Trend indicators such as the moving average convergence divergence (MACD) and average directional index (ADX) can help assess and follow trends.
4. Range trading
Description
Range trading involves identifying levels of support and resistance and buying and selling at these levels.
Application during session times
In the Asian session where volatility is usually lower, traders can identify stable ranges to trade within. During overlaps, if prices break a key range level, traders can adjust their strategy from range trading to breakout trading.
Tools
Use non-expanding indicators like the relative strength index (RSI) to identify overbought or oversold conditions within the range.
5. News trading
Description
This strategy emphasizes trading based on economic news releases that significantly impact market movements.
Application during overlaps
Many important economic data releases, such as the U.S. non-farm payrolls or ECB announcements, often coincide with session overlaps. Traders prepare for volatility spikes by analyzing economic indicators and positioning themselves to benefit from the resultant price movements.
Tools
Economic calendars, sentiment analysis, and pre-market volatility indicators help traders gauge potential market reactions.
6. Arbitrage trading
Description
Arbitrage involves simultaneously buying and selling a currency across different markets to profit from price discrepancies.
Application during overlaps
When markets overlap, price differences between brokers or exchanges can create arbitrage opportunities. Traders must act quickly to exploit these discrepancies before they disappear.
Tools
Automated trading systems can help execute rapid trades to capitalize on small price differences.
7. Swing trading
Description
Swing trading aims to capture price swings over a few days or weeks. Traders look for short-term patterns that indicate potential reversals or continuations.
Application during overlaps
Enter trades based on larger price movements during overlaps, using technical analysis to identify swing points. This can capture pips offered by more extended price actions.
Tools
Candlestick patterns, Fibonacci retracement levels, and trend lines can aid in identifying potential swing points.
