How to trade Forex or Which currency pair to trade are frequently asked questions, but it
is also important to know WHEN to trade…
Indeed,
Forex is a market open 24 hours a day, but all periods are not equal when it
comes to trading. There are indeed times that are more active than others, and
the less active the market, the fewer opportunities there are.
The different “sessions” of Forex
A day in
forex can be divided into 3 sessions, depending on the opening of the main
financial centres around the world. These sessions are neither official nor
clearly defined, since Forex is a market open 24 hours a day, but they are
interesting benchmarks to know what to trade and especially when.
We can
therefore locate the Tokyo session, the London session and the New York
session, and retain their approximate “times”:
* Tokyo
session: Midnight - 9 a.m.
* London
session: 8 a.m. - 5 p.m. *
New York
session: 1 p.m. - 10 p.m.
What are the best times of the day to
trade Forex?
The first
thing to notice is therefore that sessions sometimes overlap:
* London
session and Tokyo session overlap from 8 a.m. to 9 a.m. * London and New York
session overlap from 1 p.m. to 5 p.m.
These
periods are therefore the periods when the volumes are supposed to be at the
maximum, since there are then traders from several different places who are
active in the market at the same time.
Now let's
take a look at the average volatility of the main currency pairs for each of
the three Forex sessions:
We therefore
notice that the average volatility is at its maximum during the London session
on all the most important currency pairs, which is explained by the fact that
over the 9 hours of the London sessions, 5 hours (from 8 a.m. to 9 a.m. and 1
p.m. to 5 p.m.) correspond to periods where two sessions overlap.
What are the best days of the week to
trade Forex?
The study of
the volatility of the main currency pairs allow us to conclude that the most
active days of the week, on average, are Tuesday, Wednesday and Thursday:
This does
not mean that trading is to be avoided on Mondays and Fridays, but the
opportunities will be fewer. In addition, Mondays and Fridays are often more difficult
to trade, because of the adjustments of portfolios at the beginning of the
week, and the profit taking at the end of the week.
Don’t forget!
You must
know how to choose the currency pairs to trade according to the session .
The most
active times of the day are between 8 a.m. and 9 a.m., and between 1 p.m. and 5
p.m. (overlapping sessions).
The most
active days of the week are Tuesday, Wednesday and Thursday.
In our next
lesson, we will look at the different
currency pairs and their volatility.
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