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Reversal Times – Applied To Forex

January 19
23:52 2010

Reversal Times – Applied To Forex

Often times we forget that the forex market is made up of people; humans who one and all have some measure of fear, greed, fatigue, hunger, as well as many other psychological and physical factors. Applying this to your current trading method is something that can give you an edge. Price reversal times applied to the forex market is a new theory for many, so let’s take a moment to examine it deeper and the psychology and emotions that cause it.

First let examine some human emotions and how they play a part in the forex market. To start let’s discuss fear. All traders, no matter how long you have traded in the forex market have some measure of fear, and fear it its proper place is healthy. Often times this is seen when the market starts to fall rapidly and the acceleration down is dramatic. The fear of the market continuing to fall is a self fulfilling prophecy and only leads to further downside. Also there is a fear of giving back floating profits. In combination with fear there is greed. All traders want to lock in profits, but also want to maximize the potential of the trade. Driving stop and take profit locations can often be negatively be affected by this Other factors that affect every trader are physical factors such as fatigue and hunger. Let me ask you this, how often do you not each lunch? Do you think traders often miss lunch, do you think they are super human and don’t experience hunger? Do you think they do not experience fatigue and never need sleep or a break? Of course not but how can we take advantage of these facts and how do they apply to reversal times?

To begin we will list some major forex reversal times and how the factors mentioned above apply to them. Some standard reversal times are as follows. Between 1-2:30AM EST the market picks a direction. From 2:30AM to 3:15AM EST the market reverses against the first move. Following this reversal the original direction continues sometime between 3:15AM and 7AM EST. From 7:15AM to 8AM EST you will see another reversal followed by continuation within the following first 2 hours of the NY session.

So why does the forex market tend to reverse and continue at certain times? Well before the first trend start Asia is closing most of its trades for the day and in addition to that European banks are opening and thus putting on their trades for the open. Given this there is an exceptional amount of volume thus this time usually produces a decent first initial move that is a consistent move, void of choppy sideways price action. Think about this, if most of the Asian session was up, in order to close some of the positions already in profit (greed/fear being a partial factor) then they must sell off their current position which produces a single direction move. After this first move and before the 3am London open often times there is a small reversal against the first move. Why is this? It goes back to fear and greed mentioned in the above for the cause of the first move. With Europe putting on their opening trades most likely they want to, like everyone else take some profit before the volatile London open in case a different market has other conflicting ideas on direction.

After the London reversal you will more often than not see the price continue in the direction first move within 2 hours following the London open. As with the London reversal, before the NY open you will see the traders closing positions already in profit to protect against another market opening. If the trend continued in a direction from London many will be in profit and thus look to lock in profits. After this reversal and provided NY agrees with the current trend the price will continue in the direction of the trend after the pre NY session reversal.

Now this may sound fairly simple and straight forward but this is simply the basics and in all actuality not all the forex reversal times or explanation of why the price reverses at these times. In addition to that you need to examine these times closely to get a feel for when they will occur and when the likely hood of a reversal is simply not there. Many traders I have mentored over the years use strictly reversal times and support and resistance to place and manage trades, and do so profitably. This is a very powerful and simple tool that most people never know or simply overlook as being too simple to be effective. Learning this simple forex trading strategy and watching it traded in the live forex trading room will empower you with something very select few know.

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1 Comment

  1. pete
    pete February 09, 17:18

    This is a really good solid no BS article. I have noticed the 0700 to 0930 GMT time area that this pattern goes with great regularity Also @0930 GMT there is strong UKNews often happening which moves the Market then a quiet time then wakes up again1215 to 1300 GMT like you say.Many thanks for confirming and improving my thinking

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