Talking Points
The Significance of Month End
Position Squaring for Short-Term Traders
Building a Bias Month-to-Month
Traders can count each day as significant in its own right as the FX market develops its monthly price action open-close-high-low. However, the bookends of the trading month mark key points that can help to understand what may be next. This article will look at the month end of price action to see how to build a bias and prepare for the open of the following trading month.
The Significance of Month End
While individual traders like you and me may not have a need to close the books at the end of the month, some institutions may. When they do, if the move is in unison, a sizable move can happen in the FX market that you should be aware of because it can offer you opportunities to reenter a strong trend. However, as traders we need to understand that the beginning and end or the bookends of the month often have the strongest presence of a move in harmony that can further trends or make definable patterns for us to recognize so that we can prepare for the next big move.
Position Squaring for Short-Term Traders
It may be helpful to note that fund managers are having a difficult time in the market. There are a few reasons for this but top of the list is that fund managers get paid for outperforming the market which has been near impossible. This difficulty for managers to match indices like the SPX500 & Nasdaq as well as offshore markets like the German DAX & Nikkei has caused them to look for other opportunities like the FX market with leverage and opportunities that can help them match the performance of stock markets.
Of course, trading or investing isn't easy and any ability to fall short in matching what's happening in other markets that's cheaper to invest in will cause investors to dump funds and head to index funds. This pressure on fund managers to appear as a viable alternative to other markets have led to close profitable trades near the end of the month and quarter to show good numbers to prospective investors.
Building a Bias Month-to-Month
You may be wondering, as traders ourselves, how can this information help us? The short answer is to look for the long-term trend and allow moves at the end and beginning of the month to present an opportunity to re-enter the strong trends. Naturally, if a move is happening out of the desperation of others that doesn't affect the long-term trend then we should look to benefit by joining the larger trend. In addition to looking for a counter-trend move at the end of the month that doesn't alter the overall trend, you can look to opening range breakouts to confirm the larger trend is continuing.
Some traders like to look to opening range breakouts of the individual sessions but these can be applied to larger time frames as well. The attached picture shows you that the US Dollar has risen since summer of 2014 and many think will continue to rise with only a few minor setbacks over the coming months as the Federal Reserve is the only central bank looking to hike rates this year at the same time we've seen 20 central banks take dovish actions early into this year to bolster their economy.
Hopefully, this information introduced you to the patterns of Month-End trading behavior by larger investors. Ideally, a strong trend is already in play and any short-term correction will give you the ability to enter in the direction of the overall trend with good risk: reward.
Happy Trading!
Subject: Understanding Month End Madness in FX 
Fri Sep 25, 2015 9:51 am
