This article will be especially useful for those who are only getting started in FX trading. If you got into trading just recently, you’re probably confused. You can’t sit at your computer all day, trying to make money, right? Good news! You don’t need to! If you haven’t figured out the best time to trade yet, this article is for you. Read on to find out when exactly you should trade.
There are four major forex trading sessions:
- North American session (New York)
- Asian session (Tokyo)
- European session (London)
- Pacific session (Sydney)
At the session opening, the currency pairs start gaining momentum:
- During the European session, EUR/USD, EUR/GBP and EUR/CHF trade in the largest volumes. As you can see, these are the pairs that contain the euro and the pound.
- In the American session, the pairs containing the US dollar demonstrate the highest volatility: EUR/USD, USD/CHF and USD/JPY. The USD/CAD pair trades most actively during US trading hours too.
- In the Pacific and Asian sessions, the pairs containing the Japanese yen and NZD/ USD are most actively traded.
But enough with the theory. Let’s see how this works in practice. Say, you decided to trade the USD/JPY pair. Now, when you know the trading hours and how major currency pairs behave, how can you apply this knowledge to practice?
First of all, we need to determine the time when your currency pair is traded most actively. USD/JPY is trending strongly during the US and Asian sessions. Our local time is GMT+3, so the highest volatility in USD/JPY will be observed from 4 pm to midnight and from 3 am to 11 am.
When New York and Tokyo traders take some time off to get some sleep, USD/JPY pauses: it usually happens from 1 am to 3 am and from 12 to 3 pm.
Also, you can see some sideways movement in the USD/JPY from 8 pm to 9 pm and from 7 am to 8 am. That’s when traders are leaving their desks to grab some lunch. We all need to eat at some point, right? :)
There’s one more thing you should keep in mind. When trading sessions overlap, their currencies are most volatile. In the middle of the session, as we’ve mentioned before, traders have a lunch break - so trading volumes decrease. At the end of the session, traders close their positions: that’s when the volumes are extremely low and currencies move sideways.
What’s YOUR best time to trade?
First of all, you need to identify your trading style. It’ll mostly depend on your trading strategy, of course. There are 4 key trading styles, that divide traders into:
- Intraday traders
- Position traders
- Long-term traders
Let's start with long-term traders. If you are patient enough to hold your positions for more than one day - maybe a week or a month, you don't need to follow trading sessions at all. How about that! Before opening a position, all you need is to make sure that there are no significant releases coming out an hour or two before you plan to enter the market.
But for scalpers and intraday traders, on the other hand, knowing trading hours and sessions is essential. You don't trade at the end of the trading sessions when the volumes are low and the market starts moving sideways. And you shouldn't expect a flat market when the price it’s about to start trending. The key takeaway here is:
When the trading session begins, get ready for a trend to show itself. When the session is about to close - expect the range movement.
The best time to trade the range
The sideways trend typically begins:
- At the end of the North American session and the beginning of the Pacific session, from 11 pm to 2 am.
- At the end of the Asian session and the beginning of the European session, from 9 am to 11 am.
Take into account the time inside the session when traders leave their trading screens for lunch.
The best time to catch the trend:
- The beginning of any trading session
- Intersection of sessions
For the currency market, the most active time is when New York and London exchanges are open, from 4pm to 7pm.
When it’s best NOT TO TRADE at all
Now that we’ve considered the best hours to trade, we should also consider the best time to not. While most traders focus on when it’s best to enter the market, it would be smart to know when you should avoid it:
- Friday. At the end of the week when the stress accumulates, we tend to make wrong and hasty decisions. Traders working for major banks are no exception.
- Holidays. Or after the holidays, to be more precise. That’s when market participants like to make adjustments to their trading. And it can be very unexpected and not in your favor.
- News releases. Our last piece of advice - do not trade the news. If you decide to enter the market during the news release, be ready to get your account wiped out. It’s just too risky and it’s not worth it.
By the time you finish reading this article, you’ll have learned about trading sessions and the best trading hours to match your trading style. Let’s recap briefly what we talked about earlier:
- If you prefer position trading and long-term trading - you don’t need to pay much attention to trading hours.
- Your best trading hours are when your currency pair is being traded.
- Find the best time to match your trading style. If you’re a trend trader, your best hours are at the intersection of sessions. If you prefer trading in a flat market, enter the market at the end of the session.
Ok, now. We've shared everything you need to know. Now it's your turn: open an account, make a deposit, and start applying your knowledge to practice!
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