Trading on the first day of the week
by, 03-17-2012 at 08:35 AM (1504 Views)
Trading currencies or other securities on the first day of a week can be quite tricky. I would not say that it is difficult, but not easy. How come? The first day of the week usually has low volatility and generally nothing important happens in terms of fundamental analysis. I try not to trade on Mondays, if I do not see extremely good risk/reward ratio trades. Occasionally, I might have some trades from previous week (when I go in the direction of the prevailing trend and try to squeeze all possible juice from the move). But that happens very rarely.
However, as I like watching for tendencies I know of certain opportunities that are there on Mondays. What happens on Monday often depends on what happened on Friday. This isn’t that I expect to see every week, but I still follow price action on the last day of the week in order to predict what I can expect in the beginning of the next week. What I want to know about Friday is whether it was very volatile or not. Did the prices move strongly or the market did not move much. Why does that interest me? I noticed a tendency that after very volatile Fridays we have pretty sharp reversals on Mondays. This as you may understand creates excellent opportunities to trade a reversal on Monday and make some nice cash.
Talking from a technical point of view I would want to see a signal about an upcoming reversal in a pair I expect to reverse. What kind of signal would I expect to see? In most cases that would be a 123 structure, which is known as a reversal pattern in technical analysis. Another pattern I would wait for is head and shoulders. That is another pattern indicating a possible reversal. So, if a currency pair moved sharply upwards on Friday and during Sunday opening and Asian session formed one of the above mentioned patterns I would be willing to short the currency pair when the pattern was confirmed (by going through number 2 in 123 pattern and going below the neckline in head and shoulders pattern. I would place sell stop order below number 2 in 123 pattern and the same order below the neckline of head and shoulders pattern.
This Friday was a pretty volatile day, so there is a chance of a reversal in some currency pairs on Monday. I will particularly close gbp/usd more carefully and wait for a reversal at the point 1.5820. Look at the chart below.
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