EURUSD Day Trades – Late US Session

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EURUSD Day Trades – Late US Session

Continuing to experiment with the “envelope strategy” (initially introduced here and in later posts) at times other than near the US open, on February 20 the strategy would have also worked well in the late US session.

While the strategy uses an indicator, ultimately the strategy is about reading price action and noticing tendency in the price.

One major difference between trading in the late US session compared to near the open is that volatility is much less as the day progresses. Therefore, 0.012 envelopes may have to be dropped to 0.01 or even 0.009. If the price is consistently not reaching the outer band on pullbacks, the envelope may need to be narrowed. If the pullbacks are blowing way past the outer band, the envelopes need to be expanded.

This is balanced with realizing that sometimes the price just won’t pullback enough to provide an entry, and some losing trades will occur when the price blows through the band.

Typically during the late US session there is a lot of sideways movement in the EURUSD, but on February 20 there was a trend.

Figure 1 shows the late US session in blue. Yellow marks the overlap period between London and New York, so when it turns blue that means London has closed.

Figure 1. EURUSD 1 Minute Chart

At the left of the chart the trend is down; if trading at that time I would have been looking for a short position right after London closed. That trade would have been a loser, as the price started to rally aggressively. By the time the price reaches the horizontal blue line (and even a wave before it) we are now most assuredly looking for longs. But the price does not pullback to the lower band (even at 0.009) to signal an entry.

The first entry occurs during a consolidation and is marked with an arrow. Since the trend is up the expectation is higher. The price is moving mostly sideways at the time of entry, but was preceded by a strong rally, therefore, once in the trade our target is above the current range. A Fibonacci extension tool is used to get an approximate exit. Usually 61.8 or 100 are used (the Fibonacci levels). In this case 61.8 is right near the former higher….since we assume the trend will continue the target can be placed at a level above the recent swing high. I use 100 and it is marked with a check mark for a successful exit.

This trade took roughly 30 minutes, although moved onside almost immediately. Those trading binary options should allow at least a few minutes for the price to get out of the purchase area and “into the money.”

After that the price didn’t pullback enough to fill any of my orders, although if a trader was watching closely they could have quickly bought when the price got very close to the outer (lower) band. On a nice trending afternoon like this it, where the price is respecting the lower band (not moving through it), it would have worked out well. On other days taking that slightly pre-mature entry can mean a loss, when waiting for a bit bigger pullback could mean a win. Therefore, I personally stick to my rules and don’t deviate from them. Sometimes that means letting a great trade slip away–and there were a couple on the way up.

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I should point out that a 3.5 pip stop always goes out when I enter a trade. That was quickly moved up to just below the sideways consolidation once I was filled and price moved up. This brought the risk down to almost zero, and resulted in a 7.2 pip profit. Since the price was still moving fairly well, I opted to use the 3.5 pip stop I usually use near the US open. If the price was not moving as much this would be adjusted, possible to 3 or 2.5 pips, based on what my expected profit is (based on volatility) so I can keep my reward about 1.5 times larger than my risk. Basically, stops and targets change based on volatility and market conditions.

Whether this strategy works well at this time and is consistent is yet to be seen. I have only utilized this strategy at this time of day on a couple occasions. For the most part, I use it in the vicinity of 2 hours prior to the US open, till about 2 hours after the US open–and will only usually trade for about an hour out of that 4 hour span, based on how the price is moving and when the most high probability trades start occurring.

Best Time to Day Trade the EUR/USD Forex Pair

Best hours of the day to day trade the EUR/USD

Image by © The Balance 2020

The allure of forex day trading is that you can trade 24-hours a day. Unfortunately, that doesn’t mean you should. Day traders should only trade a forex pair when it’s active and there’s lots of volume and transactions occurring. The EUR/USD has certain hours which are acceptable for day trading because there is enough volatility to generate profits, which are likely higher than the cost of the spread or commission. To be efficient and capture the largest moves of the day, day traders hone in even further, often day trading only during a specific 3–4-hour window.​

The Impact on EUR/USD Volatility

The forex market operates 24-hours a day during the week because there’s always a global market open somewhere due to time zone differences. However, not every global market actively trades every currency, so different forex pairs are actively traded at different times of the day.

When Europe is open for business, pairs that involve the euro (EUR) or British pound (GBP) are more actively traded. When the U.S. and Canada are open for business, pairs that involve the U.S. dollar (USD) and Canadian dollar (CAD) are more active.

If day trading the EUR/USD, the times that are likely to be most active for the pair, on average, will be when London and New York are open. Those markets are open between 0800 and 2200 Greenwich Mean Time (GMT). To see major market hours in your own timezone, or your broker’s (charts) time zone, use the forex market hours tools.

Acceptable Times to Day Trade EUR/USD

The hourly volatility chart shows how many pips the EUR/USD moves each hour of the day (times are in GMT). There is a significant increase in the amount of movement starting at 0700, which continues through to 2000. After this, movement each hour begins to taper off, so there are likely to be fewer big price moves day traders can participate in.

Day traders should ideally trade between 0700 and 2000 GMT. Trading outside of these hours, the pip movement may not be large enough to compensate for the spread or commissions.

Volatility changes over time, but the most volatile hours generally do not change too much. 0700 to 2000 GMT will continue to be the most acceptable time to day trade, regardless of whether daily volatility increases or decreases. Note that daylight savings time may affect trading hours in your area.

EURUSD Day Trades – January 28

Only one trade fulfilled my trade requirements during the late London and early US session, yet the trade is worth discussing since it encompasses many of the concepts I have discussed in other articles.

For about an hour before the US session began the EURUSD was moving predominantly sideways. Not price action I am interested in; I much prefer when the market has a directional bias.

As the US session begins there is a spike in the EURUSD on a US news release, which starts a potential trend. Trend trades are primarily what I look for and will be focus of this article. There are also ways to trade news releases, which could have been implemented following the release (See: Trading the News).

Figure 1. EURUSD 1-Minute Chart

This charts shows a lot of information, so let’s work from left to right. Based on the envelope strategy (See Forex Day Trades-October 7 and subsequent posts) we are waiting for a pullback to the lower band, but must also watch price action to validate the signal.

Just before the lower band is touched for the first time (after the run up), the price made a lower high and is a making a lower-low as it reaches the lower band. This indicates a deeper pullback is underway (or a potential reversal if it takes out prior support–horizontal black lines). Therefore, we don’t have an order waiting to go long at the lower band. We either avoid this trade, or only buy it when it begins to move back higher. One way to enter this trade is to go long when the price moves back above the lower band.

In this case it would have worked out, especially since the deeper pullback held above prior support levels marked by the horizontal black lines.

The price then proceeds to make a new high and pulls back to the lower band. In this case, we do have an order waiting at the lower band (red up arrow). We have an order waiting because we can now see this is likely just a consolidation in an overall uptrend (See: Should I Hold Through a Pullback Part 1 and Part 2). Since the price tried to drop but couldn’t, then rallied to a new high (albeit only slightly) it is now quite likely that this pullback is just a brief reprieve before continuing to trend.

Entry points won’t always be this perfect, as the price barely moves past the lower band and then springs higher. A Fibonacci extension tool is used to approximate exits, although I always prefer to actually rely on price action for my exit points.

If using Fibonacci levels, the most applicable level is 100. A small red check mark indicates this exit point; a 10.5 pip profit for a 3.5 pip original risk which could have been quickly reduced to less than 1 pip. Moving to the right there is another check mark. If using a manually exit, this is where you’d be looking to get out. The price tried to move higher, but barely could and then we see a bearish engulfing pattern (ie. short-term shift in momentum).

Paying attention to price action and being patient can pay off. Sometimes there are lots of trades in a few hour span, and other times there aren’t many. Don’t change your strategy every day just to try to get in as many trades as you can, focus on what you know. Better to make a profitable trade or two on something you know than to start experimenting and end up losing on a bunch.

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