Aug 29 2009
A typical forex pattern that can be exploited by the forex traders is the Friday to Sunday price extension. The simple assumption is that price will open the new trading week Sunday NY time in the same prevailing direction as they closed on the Friday evening.Know the
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After the weekend, the Sydney traders generally do not have the oomph or desire to reverse any meaningful decline seen in NY. They are therefore happy to see the prices steadily drift in the direction NY left them until Tokyo comes online.
Just keep this in your mind that don’t expect for a miracle reversal in the direction of the price action on Sunday if you have a losing position. Once Tokyo and London enter the market, the direction may be reversed. But often by then traders nursing losing positions will have already been stopped out.
After a Friday with extreme volatility, however, this typical pattern is enhanced and turns into a low risk trade opportunity for traders. The reason is simple. On economic data heavy Fridays, prices usually end up several hundred pips away from where they started the day.
This leaves the Sydney dealers with a mess on their hands by the time they start trading early Monday morning. As they go through their motions of processing the outstanding orders that the moves in NY have created, this activity shows up as a Sunday morning bump.
Suppose a big economic number is released on Friday morning in NY. It causes the currency prices to jump wildly in both directions. Eventually the market settles for a direction and proceeds to follow it for the rest of the day.
Once European traders go home, liquidity quickly dries up and the NY traders begin to plan their weekends. In this 3-5 pm window, the price will slowly trickle in the same direction until the close of the week.
The market is too thin to stage any kind of meaningful reversal. This window of opportunity enables traders to safely enter the market in anticipation of a Sunday extension.
When Sydney opens the new trading week, the move is quickly extended further for 10-50 pips before settling in for a Tokyo open. By entering yourself in the general direction of the market during the 3-5 PM window, you can position yourself ahead of the market.
Trading the Friday to Sunday extension is simple, yet highly effective. This high probability outcome combined with a limited downside gives this trade great risk-return characteristic.
All that you have to do is to close your eyes, enter in the prevailing direction of the market during the 3-5 PM window and return on Sunday evening NY time to collect your 10-30 pips. Talk about making money while you sleep.
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