Page 129 - Ultimate Guide to Currency Trading

traders will be out of the markets completely. At best, they will hold on to the positions that they hold
already. They might even enter into a few hedging strategies.

If you are trading aggressively, then you can take advantage of these opportunities to build up
your FX positions. If the market performed horribly the day before, and the S&P 500 futures are down
significantly (by more than 2.5 percent) then you have to stop and consider if the market has already
priced-in the risk-averse sentiment into FX prices.

Charts can help you determine if risk trades are properly priced, allowing you to
trade ahead of the news. Technical charts will tell you if each pair is at the bottom

Essential or top of its price cycle and if it is a good time to enter a trade that would allow you
to capture any rebound in the next session.

This can be a difficult task, and it takes a bit of observation and predictive skills to see if the
AUD/USD or the EUR/CHF will move further down before an anticipated extremely bad day in the
market. When determining if you should get into a trade before the news, you must remember that
the aftermarkets in Europe have been open after a day of very bad numbers, and many traders will
enter the market as bargain hunters. This action of buying at this time will help form a bottom of the
market, and will set the stage to begin the inevitable climb of the markets.

Additionally, if the European markets have done poorly, and the U.S. S&P 500 futures are set
to show that the market will open lower, there is a strong possibly that most of the FX trading has
taken place by 6:00 A.M. eastern, which is an hour before the US New York markets open. This is true
because the heaviest time of the FX trading day is when the U.S. and the European markets overlap. If
you consider that most of the new pricing of the currency pairs will have taken place in anticipation of
the U.S. markets' opening lower, then you could conclude that you could actually take some long
positions of some of the currency pairs that reacted the most to the anticipated bad day in the
markets.

This is an example of trading ahead of the news. Most of the time you can get into trades and
have a good idea of what direction the FX pair will take in the next few days. The problem arises when
there is very bad news. During these times you should take added precaution with your Forex trades.
With a bit of foresight and long risky positions, you can capture strong rebounds in the market.