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If you are a forex trader, one of the most significant factors that can impact your profitability is the time of day you decide to trade.
Forex trading times can influence everything from liquidity to volatility. Knowing when to execute a trade can make all the difference in your over profitability.
This blog post will explore the best times to trade forex and what factors to consider when deciding when to enter the market.
The Forex Market: Understanding Its 24-Hour Cycle
Unlike other financial markets such as the stock market, the forex market is open 24 hours a day, five days a week. This means that traders can enter and exit the market at any time, giving them the flexibility to trade around their schedules.
The forex market is also unique in that it is divided into three main trading sessions: the Asian, European, and North American sessions. Each of these sessions has its own characteristics and can influence the market in different ways.
The Asian Session
The Asian session is the first major trading session to open on Sunday and it starts at 8:00PM EST and closes at 4:00AM EST on Friday. This session is sometimes referred to as the Tokyo session since Japan is the major player in the Asian market. Other major financial centers in the region include Hong Kong, Singapore, and Australia.
The Asian (called the Tokyo) session is known for low volatility and liquidity, with many traders taking a more measured approach during this market session. It is important to note that certain currency pairs, such as the USD/JPY and the AUD/USD, can see increased trading activity during this session. It is not uncommon for a range bound market to occur.
The European Session
The European session is the second major trading session to open, and it starts at 3:00AM EST and closes at 11:00AM EST. This session is sometimes referred to as the London session. The London session is considered the major participant in the European market. Other major financial centers in the region includes Frankfurt, Paris, and Zurich.
The European session is known for high volatility and high liquidity, with many traders looking to take advantage of the price movements that occur during this time. This session is particularly active for the EUR/USD, GBP/USD, and EUR/JPY currency pairs.
The North American Session
The North American session is the last major trading session to open. The session starts at 8:00AM EST and closes at 4:00PM EST. Traders refer to this session as the New York session. The New York Stock Exchange is the major exchange in the North American market. Other major financial centers in the region include Toronto and Chicago.
The North American session is known for high volatility and high liquidity, with many traders looking to take advantage of the price movements that occur during this time. This session is particularly active for the USD/CAD, USD/JPY, and USD/CHF currency pairs. All these pairs are USD crosses.
Factors to Consider When Choosing Trading Times
The trading sessions can give traders an idea of when the markets are most active, but there are other factors to consider.
Here are 4 factors to keep in mind:
Your Trading Strategy
Your trading strategy should be the most important factor in determining your trading times. For example, if you are a day trader who likes to enter and exit positions quickly, you may want to focus on the more active trading sessions to scalp the market. On the flip side, if you are a swing trader who holds positions for several days, you may be able to take advantage of quieter trading times.
The economic calendar can have a major impact on the forex market. It is important to be mindful of any major economic events that are scheduled to take place during your set trading times. For example, the release of important economic data such as the Non-Farm Payrolls (NFP) report can lead to increased volatility. As a trader you should be taken NFP into consideration when choosing trading times. It is important to note that economic events can impact different currency pairs differently, so it is important to be aware of which pairs may be affected. Not all are affected equally either.
As the forex market is open around the clock 5 days a week, traders need to be aware of the time zone they are in to be prepared for different trading sessions. For example, a trader in Australia may find that the Asian session overlaps with their normal trading hours, while a trader in the United States may find that the European session is more convenient. Some traders go the extra mile and wake up at crazy hours to trade certain sessions. “Each to their own” – That is how the saying goes.
Market conditions such as volatility also play a role in choosing trading times. If the market is particularly volatile or unstable, it may be better to wait for conditions to stabilize before entering a position. Conversely, if the market is relatively stable, there may be more opportunities to enter positions.
To wrap it up, forex trading times form part of multiple important trading factor to consider when trading forex. By understanding the characteristics of the different trading sessions and the factors that can impact trading times, you as a trader can make informed decisions about when to enter and exit positions. Frankly, the best trading times will depend on each individual trader’s strategy and available free time based on their schedule.
In conjunction with the three major trading sessions, there are also other times during the day when the forex market can be active. These include the overlapping times between the different sessions and economic data releases. Keep an eye on Forex Factory!