When to Trade

Forex Trading Sessions
There are different forex trading sessions, the forex market is open 24 hours a day, but most active during the European and American trading sessions. Profits from trading can be made when the market is moving up, down or sideways. A professional trader finds it difficult to make money when the market is not moving a low volatility times during the day.

Forex Market Hours
The currency market can be divided into three major trading sessions: the Asian session, the European session, the American session. Below are tables of the open and close times for each session:

Times vary summer to winter because of Day-Light Savings

Actual open and close times are based on local business hours. This varies during the winter as some countries shift to/from daylight savings time (DST). The day within each month that a country may shift to/from DST also varies. In-between each forex trading session, there is a period where two sessions are open at the same time. The overlap of the European and American sessions is the busiest times during the trading day because there is more volume when two markets are open at the same time.

Now we look at the average pip movement of the major currency pairs during each forex trading session.

From the table, you will see that the European session normally provides the most movement.

Asian Session

The opening of the Asian session at 01:00 CAT marks the start of the trading day. You should take note that the Tokyo session is sometimes referred to as the Asian session because Tokyo is the financial capital of Asia. Japan is the third largest forex trading center in the world. The yen is the third most traded currency, involved in 16.50% of all forex transactions. Generally, just over 20% of all forex transactions take place during this session.

The table below illustrates the pip ranges of the major currency pairs during the Asian session.

These pip values were calculated using averages of past data, these are not absolute and can change depending on liquidity and other market conditions.

Characteristics of the Asian Session

  • The major countries involved are Japan, Hong Kong, Sydney and Singapore.
  • The main market participants are export companies and central banks. Asia’s economy is seriously export dependent, Japan, China and Korea are major trade players, there are a lot of transactions taking place daily.
  • Liquidity during the Asian session can sometimes be very low.
  • It is more likely that you will see stronger moves in Asia Pacific currency pairs like AUD/USD and NZD/USD as opposed to non-Asia Pacific pairs like GBP/USD.
  • During times of low liquidity, most pairs stay within a range. This provides opportunities for short day trades or potential breakout trades later in the day.
  • Most of the action takes place early in the session, when more economic data is released.
  • Moves in the Asian session could set the tone for the rest of the day. Traders in latter sessions will look at what happened during the Asian session to help organize and evaluate what strategies to take in other sessions.
  • Traditionally after big moves in the preceding American session, we market consolidates during the Asian session.

Which Pairs to Trade?
Since the Asian session is when news from Australia, New Zealand, and Japan comes out, this presents an opportunity to trade using fundamentals; news events. Furthermore, there could be more movement in yen pairs as many yen transactions are traded as Japanese companies conduct business. China is an economic superpower, so whenever news comes out from China, it tends to create volatile moves. With Australia and Japan relying heavily on Chinese demand, we could see greater movement in AUD and JPY pairs when Chinese data comes in.

European Session
The European session starts lead by volatility in London, and other major European economies; France, Germany. As the Euro session starts the Asian session is ending. In history, London has always been at a center of trade, thanks to its deliberate location. 30% of all forex transactions occur during the London session.

  • Most trends begin during the London session, and they typically will continue until the beginning of the New York session.
  • Volatility tends to die down in the middle of the session, as traders often go off to eat lunch before waiting for the New York trading period to begin.
  • Trends can sometimes reverse at the end of the London session, as European traders may decide to lock in profits.
  • Due to the large amount of transactions that take place, the London trading session is normally the most volatile session. This leads to high liquidity and potentially lower transaction costs, lower spread.

Below is a table of the London session pip ranges of the major currency pairs. These pip values were calculated using averages of past data from 2012

Which currency pairs to trade?
Because of the volume of transactions that take place, there is so much liquidity during the European session that almost any pair can be traded.

  • The majors (EUR/USD, GBP/USD, USD/JPY, and USD/CHF)
  • The yen crosses (more specifically, EUR/JPY and GBP/JPY), as these have a habit being volatile during the European session.

American Session
The American session starts lead by volatility in New York, the financial center point of trade. Look to New York for confidence in trends and confirmation of technical price patterns. As the American session starts the European session is ending.

  • There is high liquidity during the American morning, as it overlaps with the European session.
  • Most economic reports are released near the start of the New York session.
  • 85% of all trades involve the dollar, so whenever big time U.S. economic data is released, it has the potential to move the markets.
  • Once European markets close, liquidity and volatility tends to die down during the American afternoon.
  • There is no volatility or price movement on Friday afternoon (end of American session).
  • Ahead of the weekend American traders close their positions to limit exposure to news over the weekend.

Below is a table of the New York session pip ranges of the major currency pairs. These pip values were calculated using averages of past data from 2012.

Which currency pairs to trade?
Take note that there will be a ton of liquidity as both the U.S. and European markets will be open at the same time. This allows you to trade practically any pair, although it would be best if you stuck to the major and minor pairs and avoid exotic pairs. The U.S. dollar is on the other side of most transactions; traders in the American session will be paying attention to U.S. data that is released. When reports are released that differ to the forecast, the market can react with a major bullish or bearish price movement in USD based currency pairs.

Times of Day to Trade Forex

Liquidity is greatest when critical mass of traders is directly participating in the buying and selling of currencies in the forex market. This materializes during the overlap of two trading sessions.

Asian & European Connection
Liquidity during this session is thin for a few reasons. Typically, there isn’t as much movement during the Asian session. look for potential trades to take for the London and New York sessions.

European & American Connection
Many participants enter at this point in the trading day, trading activity is at its uppermost point for the day. This is the busiest time of day, as traders from the two largest financial centers (London and New York) begin trader side by side. During this period, there is a high probability for big price moves due to fundamental reports out of Canada and the United States. As well as late news report out of Europe. Established trends continuing from the European session into the American session with US traders entering the market, after seeing what happened earlier in the day. At the end of this session, some European traders may be closing their positions, which could lead to some price moves right before lunch time in America.

Days of the Week to Trade Forex

The European session is the biggest trading liquidity, in comparison, certain days in the week show more movement. Below is a chart of average pip range for the major pairs for each day of the week, as you can see, it is ideal to trade Tuesday, Wednesday and Thursday. We know on Friday the market slows down after the European session closes. The busiest times are usually the best times to trade since high volatility tends to present more opportunities.

Manage your time

Unless you don’t sleep, there is no way you can trade all sessions. Even if you could, why would you? While the forex market is open 24 hours daily, it doesn’t mean that action happens all the time. As a part of being a professional trader one must learn when to trade, and not to trade.

When to Trade:

  • When two sessions are overlapping, these are also the times where major news events are released possibly causing volatility and price movements.
  • The European session tends to be the busiest out of the three.
  • The middle of the week typically shows the most movement, as the pip range widens for most of the major currency pairs.

When NOT to Trade:

  • Saturdays and Sundays – relax and rest over the weekend.
  • Fridays – liquidity comes to an end for during the last part of the American session.
  • Holidays – everybody is taking a break.
  • Major news events
  • During major sport or major event on TV

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