If you are a traditional Forex trader, the best time to collect pips are from 2:00am – 12:00pm EDT, when the markets are the most active. The European Exchange Opens at 2am, London Opens at 3am, and New York opens at 8am. There are a ton of financial transactions processed during these hours. Important economic news reports are also released during this time period. A good or bad report can send currencies moving over 100 pips in a relatively short period of time.
In “Best Time to Trade Currencies”, a recently released free eBook from TradingPub, Joshua Martinez from Market Traders Institute discusses the characteristics of the Active Zones versus the Dead Zones and how to trade them. Active Zones have far better price movement, and therefore greater opportunities to collect pips. Dead Zones tend to be much quieter, but they can also provide opportunities for trading binary options.
Dead Zones occur in the afternoon when the European and London markets have closed and the New York market is nearing its close. The sheer volume of transactions quiets down dramatically and it’s not uncommon to see the market drift sideways after 4pm EDT.
Krystal Comber from Slicktrade has a trading strategy coined the “Afternoon Delight” which capitalizes on the transition from the Active Zone to the Dead zone. The setup is very easy to identify:
This is a 15 minute chart of the GBP/USD on Wednesday, December 17 for a binary options trade with a 7:00pm EDT expiry. To find this trade, you go to the Nadex Finder, pull up the GBP/USD currency pair, and select the 7pm expiry.
- After 12pm, look for a MACD crossover on the charts.
- If the crossover is BULLISH, then BUY from the first strike price BELOW the crossover
- If the crossover is BEARISH, then SELL from the first strike price ABOVE the crossover.
- In this example, a trend line was also plotted at the time the crossover occured
- The decision was made to BUY at 1.4880 with a maximum risk of $87 per contract to make a maximum reward of $13 per contract. The risk premium is more expensive on a high probability trade.
After the trade was placed, the market continued to drift north and the trade was never threatened, resulting in a successful capture of the maximum reward at 7pm (exchange fees not included).
When you trade this strategy, you will almost always be risking more to make less, per contract, but your probability of success is also heavily on your side. If the market does turn against you , you need to prepare to exit the trade for a partial lost of capital risked.