The world of trading has become increasingly dominated by short-term speculation. Since the early 1970s, virtually all markets have become increasingly volatile, and the time window of market moves has steadily narrowed. Nowadays, large intra-day price swings provide a consistent source of opportunities for an increasingly popular form of trading known as session trading.
In addition to the increase in market volatility, a large decrease in commission costs in recent years and significant advances in computer technology have become powerful driving forces behind the growth of session trading.
Commission cost has historically been the single largest overhead factor in trading. With the advent of negotiated brokerage commissions and discount brokerage services, it is now possible for traders who do not seek the advice and input of a “full service” broker to pay greatly reduced commissions, thereby allowing for more active trading as well as trading for smaller price moves.
In addition to greatly reduced commissions, the combination of advanced computer hardware, charting software and a wide array of “real-time” market quotation services accessible by computer, all affordable to even the beginner trader, has enhanced public participation in an area, which was historically the exclusive domain of professional off-the-floor traders and on-the-floor pit brokers. The increased pool of short-term and session traders has increased market liquidity, which in tum, has facilitated short-term and session trading.
What is Session Trading?
Session trading is the process of making trades during the course of the trading day with the intention of making short-term profits. True session traders will not hold positions to the next trading session regardless of how they have fared during the day. This means that a loss is a loss and a profit is a profit and that all scores are settled by the end of the trading session – win, lose or draw. Session trades may be entered at any time during the day, but they must be closed out by the end of the same day.
While it is true that leaving a trade open for as long as possible increases the opportunities for profits, it can also result in greater losses. What is critical in session trading is not the length of time the trade remains open but, rather, the range that prices traveled during the period the markets are open from opening trade to closing trade. Successful session trading requires, among many other conditions, a wide trading range.
What Does a Session Trader Do?
The task of the session trader is to forecast price movements within the confines of one trading day using technical analysis tools. Many opportunities to profit arise in the course of every trading day but if, and only if, you know what to look for. This is why proper training is essential to anyone wishing to trade in this manner.
Why Session Trade?
Given the volatile market environment described above, session trading offers several advantages over position (i.e. longer-term) trading. They include the following:
1. Maximized Equity
Session trading allows traders to maximize their trading capital by avoiding the need to post overnight margins. Many brokerage firms will allow their clients to trade actively and very aggressively within the day time frame without requiring them to post the large margin requirements which would be necessary if the positions were held overnight.
2. Reduced Risk Exposure
Since the session trader, as a rule, exits all trades by the end of each trading day, he or she is not vulnerable to considerable price volatility which results from the news or fundamental developments occurring after trading hours (i.e. overnight).
3. Advantages of Forced Exit
Session trading forces traders, who follow their rules to exit positions by the end of the day, win, lose or draw. Those who are committed to session trading will not carry losing positions overnight. This forces traders to take their losses regardless of what excuses may be made in favor of holding positions. The session trader who exits all positions by the end of the day will be spared the pain of further losses occurring overnight or into the next day as well as the often debilitating anxiety and uncertainty that occur when riding losses.
4. Immediate Feedback
In session trading, feedback in the form of profits and losses is much quicker than is the case with longer-term trading. The session trader can more readily learn from his errors, as he or she will know no later than the end of the day (and frequently within minutes or seconds) whether or not the trade is a profitable one.
What Does a Session Trader Trade?
We will teach you which markets to session trade and when to trade them. Some markets will lend themselves more readily to certain trading systems, methods, and techniques and we will identify these for you. Some session traders will avoid certain markets, feeling that the potential for profit is not large enough or that the risk is too high.
While all reasonably active markets have the potential to be session traded at one time or another, there are some markets, which are suitable for session trading every day, and some markets, which should only be session traded at certain times. We will teach you how to recognize when given markets should be session traded and when they should not.
Objectives of the Session Trader
It is not the job of the session trader to understand the fundamentals of market movement. The primary objectives of the session trader are as follows:
1. To make a profit, no matter how large or small; and
2. To keep all losses small and manageable.
We emphasize risk management techniques, which carefully regulate the size of potential losses. Once we have pre-determined the maximum amount of our potential loss at an acceptable level, we are free to go about the job of ascertaining and seizing the many opportunities from session trading that arise during the course of every trading day.
Major Trading Sessions
The three main trading sessions are called after: Tokyo, London, and New York. Markets are usually most active while these cities are conducting business, as this is when the city’s biggest banks and firms perform their daily transactions. The following are the main trading sessions:
London Session Trading is Europe’s busiest financial center, with some of the world’s top institutions based there. Because of the vast number of market players and high-value transactions in London, the session is the world’s largest and most important.
The New York Session Trading, often known as the North American Session, accounts for 16 percent of global forex trade. Even while other countries such as Canada and Mexico contribute to market activity, the North American Session is dominated by activity from the US markets.
The first market to open is the Asian Session, commonly known as the Tokyo Session Trading. The Asian session is used by market participants to plan their tactics. The Asian session’s activities are expected to begin around 11:00 p.m. from 6:00 a.m. to 8:00 a.m. GMT.
That’s it for the session trading! Another thing that correlates with Session Trading is – Position Trading, which I’ll share with you on the next blog post.
As always, if you have any questions about this topic, feel free to comment down below and I’ll get back to you soon!