3 Trading Strategies using Liquidity Changes

3 Trading Strategies - Liquidity, Market Open and Close, News Trading

Support and Resistance

Support and resistance are really past support and resistance, which the market may or may not respect at a given time as it approaches them. But the presence of such past support or resistance may invoke apparent resistance to movement. Forex can also be characterised as having potential resistance to movement happening near big figures.

A feature of Forex trading is moves becoming unstable when running into such resistance, perhaps repeatedly, or perhaps too close to a big figure. But what about when resistance is introduced into the market.

When markets close or after a major news move, liquidity changes may create resistance to further movement, which may lead into support or resistance. It can also accelerate moves which are already reversing, like a release. So two strategies for this are to fade moves on market closes and to exit from a trade into news. Alternatively, decreased resistance can alter movement and a strategy may be derived from this.

With these 3 strategies, the aim is to look for times in a market where circumstances may predispose it to a directional move, which may on either side of it have destructive volatility to be avoided.

1. Fading on the end of the day

The time before the end of a market session may result in an accelerated move. If this is the case, then the assumption is that the close of the market will alter the rate of the move (which it may or may not). Momentum may continue the move after close, maybe up to 5-10 minutes after. So entry could be possible a few minutes after close against the move, if it looks like momentum is fading. It may be found that a significant move down is unlikely and something more like a pause happens, unless there is instability in the market, as market closes may lead into calm moves.

A way to potentially tighten this strategy is to look for a reversing downward or upwards move, which is given extra collapse as liquidity fades, or a further boost in a move up. This focuses on what the effect of liquidity changes may be into market events which may cohere with them. To potentially tighten further, then volatile market conditions may increase any structure breaking tendency, as trends and value levels built during the session collapse. Equally they may make for sharp bounces and reversals though.

2. Exiting on a pause

Entry has been taken on a news trade, the stop-loss has survived and oscillations and the move has pushed in the chosen direction. So where to exit. At some stage the move may stall at support or resistance. At this point, the move can continue on or can oscillate back or continue in a calmer move.

One option is to exit here, rather than hoping for continued moves. The very fact it has stalled may indicate change (or it may not). The opposite of resistance is perhaps increased flow. The next strategy looks for this.

3. Going with the flow

Around 7:30am EST, before NY open, the market may pick up pace. If this emerges from a slow calmer time, it may show itself as increased directional moves building in 5 minute candles and evident on 15 minutes. So entry could potentially be taken here, and then exited as volatility creates turbulence as open approaches. Volatility close to and after market opens can change the value landscape, resulting in oscillations and sudden surges.

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