Day Trading FX And Volatility.

*An in depth look at the analysis surrounding two separate, short duration day trades*

Welcome back to the blog, I hope you all had a wonderful weekend. In this blog post I am going to show you the pre-trade technical analysis for 2 separate day trades taken recently. I will show you the technical indicators and analysis theory I used for the entry and exit on each trade.

Day trading is just a term used by traders to describe short duration trades that are often closed prior to the market close and therefore positions are not held overnight. I consider this to be the true definition but because I trade FX currencies that trade constantly without close from Sunday night (GMT) through to Friday night, I do sometimes hold “day trade positions” overnight.

Trading FX is always slightly more complex than trading stocks which only trade on a specific exchange because FX contracts are traded globally across multiple timezones and exchanges. Therefore there is no real “daily” market close as instead when one exchange closes another opens in a different timezone. The image below shows these timezones and trading sessions.

Let’s start by looking at the FX currency trade. This was a long trade position (Buy) entered on the EURUSD FX currency pair. That is the Euro vs U.S. Dollar.

EURUSD 15 minute timeframe chart – trade entry

There were multiple reasons for taking this long trade late last night upon the weekly FX market open. The main ones are all shown on the chart above.

Firstly, price action on these lower timeframes on EURUSD have been bullish and there is a bullish trendline that seems to be holding strong and this is drawn on the chart. Price hadn’t quite reached the trendline at the point of entry but it was there if needed. Alongside this, I also saw that price had made a little gap down in to the daily pivot level and a previous support/resistance zone that had cause price reactions only a few days prior. There was also a bullish EMA alignment supporting a long trade bias (50EMA above 200EMA) and this is shown on the chart.

This trade had a potential return of just under 2R when I entered. I had a stop loss placed 10 pips below the lows of the larger bullish wick candle that rejected the daily pivot level. This meant it would likely be safe from any more wick rejections of the pivot level/support zone and if price did break out and move against me then I would be removed from the trade. As with most of my day trades using this strategy, I aim for the daily R1 resistance level as my initial profit target.

EURUSD 15 minute timeframe chart – trade exit

Price bounced off of the daily pivot level as expected and went on to retest a resistance zone around 25 pips above my trade entry. Overnight price then went back to retest the daily pivot level and support zone once more before it continued on to the daily R1 level and my profit target. I did not set a manual take profit order and instead chose to observe the price action.

Price broke through the R1 level and I thought there was potential for this trade to go much higher. However, resistance began to form around 1.14650 and I exited the trade on the close of a large bearish candle that looked like a double top pattern. This actually allowed me to increase the return of this trade from 1.97R to 2.12R thanks to price being above the daily R1 level when I closed it.

Why am I day trading?

Since the end of Quarter 1 this year I have been writing about increased market volatility and continued erratic and choppy market structures forming in stocks and currencies. This is still the case and it is why I am focusing a lot on taking shorter duration trades and taking profits from the markets as soon as possible.

The bigger extended moves and trends just aren’t establishing themselves right now and it is proving less successful to be holding intraday positions through multiple days/weeks. Large price reversals and spikes in price caused news on coronavirus and economic data are more common now. I think it is good practice to take some profits quickly when you can, reduce your exposure to this market chop and maintain steady capital growth.

Volatility Futures Trade.

My second day trade that I want to show you is actually from earlier this month. It was a short trade on the July 2020 Volatility Index Futures contracts. I trade Volatility futures around high impact new events like the non-farm payroll (NFP) data release that tells the market about U.S. Unemployment.

July20 VIX futures 5 minute timeframe chart – short trade

This months NFP data was a big positive for the U.S. economy despite there still being huge levels of total unemployment. In June, a total of 4.8m jobs were added to the economy which is the biggest single monthly gain in history although again, this was following on from 2 months (March and April 2020) where a total of 22 million jobs were lost.

The important part is what was expected by investors and market participants and the difference between the actual data and expected data is what causes your near term price movements in the markets. The general consensus was that around 3 million jobs would be added so the actual data was a huge positive for the U.S. economy.

A larger than expected decrease in unemployment levels sends stock prices rising and market volatility futures falling. There is also another reason why VIX futures prices tend to fall on the release of high impact economic data and this is because of the increase in knowledge of investors and traders. It is essentially helping investors and even algorithms with their future predictions and assisting them to price in the future because they now know more than they did before the data was released. This then reduces implied stock market volatility in the future which is what VIX futures are priced on.

I have started trading Volatility Futures a lot more in recent months since developing this trading strategy and I have previously written multiple blog posts explaining why and how I trade VIX. You can read some of the posts from my Trading Market Volatility series by clicking on the links below.

If you are interested in learning my personal trading strategies, please consider my Mastering The Markets – Retail Trading Course. Head over to my Trading Education page to check out all of my education packages and the deals available.

Useful Links:

All my technical analysis is done using the TradingView platform. You can get access via the link below.

My preferred broker of choice is IC Markets. Low spreads and trading costs really help long term profitability. A link to their site is below.

FTMO Trader Funding Programme.

Thanks for reading and please don’t forget to LIKE, SHARE and FOLLOW my blog to stay up to date with the latest market analysis and trading education posts.

DISCLAIMER: None of the information posted on this site is to be considered investment/financial advice. Trading is high risk and you should only trade with money you can afford to lose.

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