Currency Trading and the 15 Day Work Week

THREE SESSIONS - One of the things about trading currencies that's critical to understand is the fact that there are three little days that go on within each 24 hour period. What I mean by this is that we are looking at three different parts of the world all trading the same markets and all trying to anticipate that next move. Each part of the world has a different personality and tends to see things differently. When we break it down into its simplest form, we have Asia, Europe and the US. The order here is also of critical importance, on the basis of that saying that goes 'it's not how you start the race, but how you finish.' And this is something that takes on added significance at times like these.

cartoon oct 25

TIMES LIKE THESE - So what do I mean here? Well, the day starts in Asia and we get an early indication of how traders in Asia are feeling about what the day will bring. Today's global risk associated with US trade policy and a China slowdown are the types of risk that bring more attention to the moves out of Asia. This can be a dangerous thing, as traders might get sucked into the idea that these moves are a prediction of what to expect for the remainder of the day. But as will always be the case with this session, it is the first of the three, and when you look at it that way, it will remind you not to get carried away with any decisions the market is making in Asia. Now, I'm not just here to bring dark clouds and sour milk. There are some great things about this which actually make it even more ideal and why I am excited to bring it up.

SEEING THE ANGLES - I'm sure you can already guess where I'm going with this one. Whenever we have the Asian market looking a lot more active, we're getting a lot more volatility. And as a trader who is a contrarian, volatility and early movement in one direction are the types of things I crave. So if there are big moves going on early in the day that get markets to an extended state well ahead of the US session, I love the idea of playing the other side of these moves, in anticipation of what I believe will be a rejection of the price action. I always joke about how even if the US market agrees with aggressive moves in Asia, it has too much ego to let Asia make the decision. So even in those situations where Asia might get it right, the US will bring it back to where things were when it left them, and only then get it back to where it was. It reminds me of the Three Stooges when Larry would suggest something and then Mo would ignore, before then suggesting the same thing!

Be careful how you react to volatility that comes out of the Asia session.

THE SUBSTANCE - Of course, all of that sounds silly and as much as I believe it to be the case, I'll also give you some of the fundamentals to chew on as well. Right now, China believes it has a massive stockpile of stimulus that will have no problem sparking a sentiment boost in China. The trouble is, if the US market ain't feeling good, it ain't gonna matter much....and China will surely suffer from that. We need to remember that stimulus injections come with a price tag. They are not ideal and are only put into play because the economy needs it. The strategy is grounded in the idea that the stimulus will prop sentiment which will get people feeling good, which will inspire a recovery that trickles through the economy. But what if people still aren't feeling good after the stimulus? Then it gets scary...and fast.

TAKEAWAY - The US has already pulled this rabbit out of the hat and had the support of the entire global economy when it did this. But I just don't see China reciprocating as far as its ability to bolster global sentiment. Moreover, we have this kind of a big deal threat to China's economy in the form of an aggressive US trade policy initiative that isn't moving anywhere but forward. So the bottom line here today is this....Whenever you see moves in Asia that extend markets one way, don't expect that this will be the direction the market is headed in when it settles later on in North America. Instead, be ready for it and be ready to bet against it. The caveat here is that the market extends enough where the trade becomes compelling. Remember...rule number one is to make sure you love the trade above all else.

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