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Forex Trading Patterns - Profits from Your Calendar
Most traders have heard of seasonal patterns, something which
is mostly associated with commodities. The foreign exchange
market also has calendar patterns which influence trading, and
just like in commodities, traders can take advantage of them
to improve their odds for success and profits.
Monthly Patterns
Nearly all currency pairs have one or more months during which
they have a directional tendency. There are three pairs in
particular which have traded in the same direction during a
particular month at least seven years in a row. AUD/JPY has
risen in January, while USD/CAD has fallen in June and USD/JPY
has dropped in August. In each case, the moves have been
significant. Let’s take a look at USD/JPY as an example.
On average, USD/JPY has declined over 325 points each year
since 1999 in the month of August, which translates to 2.80%.
While the percentage does not seem extraordinary, when one
takes leverage in to consideration, it is a different story.
Had one shorted 100,000 USD/JPY at the start of each August
and closed that position out at the end of the month, the
total profit would have been in excess of $20,000 (not taking
in to account interest carry). That is an outstanding return
considering the margin requirement for a position like that is
only $2,000. And this does not even consider compounding!
Weekday Patterns
For the short-term trader, there are also patterns of behavior
which are based on weekdays. It is a little more complicated,
however, than just saying buy or sell on Monday, for example.
A secondary condition must be applied, which can be
accomplished using the month. The result is patterns which
take place on certain weekdays during a given month.
An example of this kind of pattern is GBP/USD on Mondays in
December. The pound has risen 73% of the time on Monday during
the last month of the year since 1999 (31 observations). The
average move has been 40 pips. Assuming a 5 pip spread, a
trader who entered traded this pattern over the last seven
years would have booked over 1000 pips in profits, which
translates to more than $10,000 if one took positions of
100,000 GBP/USD each time.
Trading the Patterns
The examples outlined above are just a couple of the patterns
which can be found in the forex market. There are many worth
incorporating in to one’s trading. Obviously, one strategy
which could be employed is a simple enter-and-hold based on
the pattern for a given month or weekday. That, however, does
leave one open to the both in-trade draw downs, some of which
can be substantial, and the simple fact that patterns do not
always repeat every time, and sometimes change.
An alternative to enter-and-hold is to use calendar patterns
to bias one’s trading. For example, a day trader could look
for opportunities to buy in to weakness in GBP/USD on Mondays
in December. Similarly, a swing trader could use short-term
breakdowns to enter in to short trades in USD/JPY during
August.
The trader looking to employ forex calendar patterns must
utilize the same good risk procedures as are always necessary.
This applies regardless of the strategy employed.
For more specific currency pair related information on forex
calendar trading
patterns, check out:
CHF, EUR, and GBP Calendar Trading Patterns and
Calendar Yen Trading Patterns.
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The Essentials of Trading
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