Note: If you have not done so already please read part 1 first: The Best Currency Pairs to Trade
In the first part of this article we discussed which currency pairs are the best to trade and explained the differences between the majors, crosses, and exotics. Today’s article is going to pick up where last week’s left off; we are going to discuss the best times to trade the forex market and the differences between the various FX trading sessions.
Since you have read part 1 and you now know which currency pairs to focus on and why, it is important that you understand when the different forex trading sessions are, how they differ from each other, and the best times and days to trade.
It is true that the forex market is open 24 hours a day, but that doesn’t mean the market is active and worth trading for the entire day. The idea is to trade when the market is the most volatile, because volatility means that a market is moving, and money is made when the markets are moving, not when the market is quiet and calm.
As a price action trader you should be especially excited about volatility, because price action strategies thrive in volatile market conditions due to the fact that they simply reflect the dynamics of price movement and provide you with easy to identify setups which allow you take advantage of volatility.
When are the various forex trading sessions?
The 24-hour forex market trading day can be broken up into three major trading sessions:
(Note: The chart to the right reflects the Tokyo open and ignores the Sydney open, we have included the Sydney open in the description below, which is an hour earlier than the Tokyo open. All times are based off summer hours in the Northern Hemisphere, the Asian session opens at 4pm EST during winter hours with the market opening in Sydney, London and New York hours remain the same)
• Asian trading session (including Australia and New Zealand): the Asian trading session opens at 6:00pm EST and closes at 4:00am EST
• London trading session: the London trading session opens at 3:00am EST and closes at 12:00pm EST.
• New York trading session: the New York trading session opens at 8:00am EST and closes at 5:00pm EST.
You will notice that in between each trading session there is a window of time where two sessions are operating at the same time. From 3:00 – 4:00am EST, the Asian and London sessions overlap, and from 8:00-12:00pm EST, the London and New York sessions overlap.
As you may have guessed these over-lapping periods within the three trading sessions are the times when volume and volatility rise to peak levels. The over-lap of the London and New York trading sessions between 8am and 12pm EST is typically the best time to trade, because this is when the world’s two most active trading centers cross; as the London session is closing the New York session is opening. Many traders strictly trade this four hour time window because it is typically a very volatile and liquid time to trade the forex market.
The Asian trading session:
The Asian trading session begins at 6:00pm EST as trading gets underway in New Zealand and Australia, an hour later at 7pm EST Tokyo opens up. Tokyo is the financial capital of Asia; it is also worth noting that Japan is the third largest forex trading center in the world. The yen is the third most traded currency, involved in about 19.0% of all forex transactions; overall about 21% of all forex transactions take place during the Asian trading session.
• Financial hot spots of the Asian trading session include; Tokyo, Hong Kong, Singapore, and Sydney.
• Liquidity is sometimes thin during the Asian session, this is why many FX traders avoid the Asian session and opt to trade the London / New York sessions instead. That said, price will sometimes make powerful moves during the Asian session.
• Major news releases for New Zealand, Australia, Japan, and China come out during the Asian session, so the NZD, AUD, and JPY currency pairs tend to move more than the others during the Asian session. (Chinese economic policy can influence other majors currencies even though China does not allow their currency to float on the international exchange)
• Generally speaking, if the London and New York sessions result in big moves, you will see consolidation during the Asian session.
The London trading session:
As Asia comes to a close the London trading session gets underway. There are several major financial centers scattered around Europe, but London has historically been the center of all forex trading. About 30% of all forex transactions take place during the London trading session.
• Due to the fact that the London session over-laps with the Asian and New York sessions, it is typically the most active trading session and this leads to high liquidity/volume and lower pip spreads.
• The London session usually sees the most volatile market conditions because such a large amount of transactions take place during this trading period. Remember, volatility is good for price action traders since we deal with the core price data of the market, instead of secondary indicators that lag price.
• Major European news releases mainly come out during the London trading session, this means the GBP, EUR, and CHF are all typically the most active during the London session.
The New York trading session:
The New York trading session gets underway at 8:00am EST, this is just about the time traders in London are getting back from their lunch breaks, and it also signals the start of what is on average the most active time period for forex trading; from 8am EST to 12pm EST.
• Between 8am EST and 12pm EST there is high liquidity as the London and New York sessions overlap.
• The majority of all economic reports are released around the start of the New York trading session since both Europe and New York are open at this time. All USD and CAD economic news comes out during or near the New York trading session.
• About 85% of all forex trades involve the U.S. dollar, so any currency pair involving the USD has the potential to make a big move during the New York trading session.
• After European markets close, volatility and liquidity tend to die down during the late-afternoon New York trading session.
• The New York close is very important as it marks the end of the forex trading day, it is important that you use New York close charts because many price action setups form as the trading day comes to an end.
What does it all mean?
If you have no time constraints or you have a job that allows you to get on the internet and check the charts periodically, the best time to trade is from 8:00am to 12:00pm EST during the New York and London session overlap. Both the London and New York trading sessions are excellent times to trade overall, so no matter where you live in the world you should be able to find a time that works with your schedule.
However, you can trade successfully purely off the daily charts, and it is also a much more stress-free way to trade, this means you can check the charts around or shortly after the New York close each day at 5pm EST. If you employ my “set and forget forex trading strategy” on the daily charts, you will only need to check the market once or twice a day for a short period of time.
The Asian trading session tends to be the least volatile, so if you are looking for big moves to occur, you are likely going to be waiting until trading gets underway in London around 3am EST.
Sundays are typically not worth trading because movement is very low and nothing significant has happened yet to set the currency pairs in motion. The best days to trade based on average daily trading ranges for the “majors” are Tuesday, Wednesday, and Thursday, Friday can be good to trade too up until about 12pm EST when London closes. Monday typically sees lower average trading ranges for the majors, but this doesn’t mean you should avoid trading on Monday, it just means it is statistically less likely that there will be large forex price movements on Monday than the other weekdays.
Remember, being a price action trader means that you need to pay most of your attention to learning to spot high – probability price action trading setups in the Forex market. In the end, what really matters is obtaining a high quality Forex trading education in price action analysis, this way you won’t really need to concern yourself with analyzing economic reports and the thousands of variables that contribute to FX price movement each day. If you want to learn how to trade the Forex market with a handful of simple yet effective price action forex strategies, check out my price action trading course.
Nial Fuller is considered a leading ‘Authority’ on Price Action Forex trading strategies. If you want to learn more about harnessing the power and simplicity of Price Action Trading Strategies please visit Nial Fuller’s Forex Trading Course & Traders Community Page Here. Nial’s Students get lifetime access to all of his advanced price action Forex Courses, video lessons, webinar tutorials, daily trade setups newsletter, live trade setups discussion forum, traders support line & free ongoing course updates. For more information visit the Forex Course page here.