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Timing is Everything in Forex

In life, timing is everything and in forex trading, knowing when to trade is just as important as knowing what to trade. One of the greatest benefits of the forex market is that it is open 24 hours a day, 5.5 days a week. The ability to trade whenever you want can be a great advantage as long as traders realize that certain times of day are more suitable for trading than others.  In order to devise an effective and time-efficient trading strategy, it is important to be aware of how much market activity occurs during different times in order to maximize the number of trading opportunities during those market hours.

Even though there is no official open and close in the forex market during the week, it can be broken up into 3 major trading sessions – Tokyo, London and NY. The Tokyo trading session is the first to open, followed by London and NY. Below is a table of the unofficial open and closes for each session.

Asian Session (Tokyo): 00:00 – 9:00 GMT

European Session (London):  7:00 – 17:00 GMT

U.S. Session (New York): 13:00-22:00 GMT

When to Trade Based Upon Your Volume and Activity

The best time to trade is when markets or trading sessions overlap because there are more participants, which means more volume and momentum to fuel trends and breakouts. This also tends to be when economic data is released, providing the triggers for the movements in currencies.

European and U.S. Overlap: 13:00 – 17:00 GMT

The forex market is the most active when the world’s two largest trading centers overlap. Approximately 70 percent of the total average range that a currency pair fluctuates in usually occurs during the European trading hours and 80 percent of the total average range of trading usually occurs during U.S. Trading hours. Just these percentages alone tell day traders that if they cannot sit at the screen all day the best time to trade is the U.S. and European overlap which is between 13:00 and 17:00 GMT.

Asian and European Overlap: 7:00–9:00 GMT

The next ideal time period to trade is when the Tokyo and European sessions overlap which is when both Asian and European traders have the opportunity to respond to European economic data. The London open can also be particularly volatile as European traders react to overnight developments.

When to Trade Based Upon Your Trading Style

The optimal time to trade can also depend upon your preferred trading style. For example, momentum, trends and breakout trading strategies usually work better during active and liquid market hours while range trading usually works best during “off hours.”

· Range trading – For forex traders that like to trade ranges during the course of the day, the best time to trade is usually between trading sessions, a hour or so before economic data is released or the lull before the market closes.

· Momentum and Trend trading – The best time to trade momentum and trend is usually after economic data is released because if the surprise is large enough we could see follow through for the next few hours.

· Breakout trading – The best time to trade breakouts is usually right when the trading session opens and when economic data is released.

At the end of the day, the best time to trade is really dependent upon your trading style and schedule.  If you like to range trade, you can trade during early hours in Singapore. If you can only trade after work, then you may want to look for breakouts near the open of the London trading session and if you are night owl, you can trade the overlap between the London and NY session. The key is to not mix and match or to try to trade range when the chance of a breakout and wild swings are the greatest.

The times of the year can also matter. Volatility in the forex market tends to settle during the July and August and pick up in September going into the end of the year. Therefore range trading may be more appropriate during July and August while trend trading may be more appropriate between October and January.

Finally, not all currencies are created equal. Some currencies are more volatile than others on an intraday basis. This does not mean that they are not appropriate for range trading but rather that when trading the more volatile pairs, wider stops may be needed. In other words, a 30 to 40 pip stop may be significant in EUR/CHF but very insignificant for a currency pair like GBP/JPY.

Kathy Lien
Kathy Lien

KATHY LIEN is Managing Director and Founding Partner of BKForex Trading Signals and BK Asset Management. Having graduated New York University 4 years early, Kathy started working on Wall St at the age of 18.

Her career started at JPMorgan Chase where she worked on the interbank FX trading desk making markets in foreign exchange and later in the cross markets proprietary trading group where she traded FX spot, options, interest rate derivatives, bonds, equities, and futures. In 2003, Kathy joined FXCM and started DailyFX.com, a leading online foreign exchange research portal. As Chief Strategist, she managed a team of analysts dedicated to providing research and commentary on the foreign exchange market. In 2008, Kathy joined Global Futures & Forex Ltd as Director of Currency Research and in 2012, she decided to branch out on her own with Boris Schlossberg to start BK Asset Management.

As an expert on G20 currencies, Kathy is often quoted in financial newspapers worldwide and appears regularly on CNBC. Kathy is an internationally published author of Day Trading & Swing Trading the Currency Market, The Little Book of Currency Trading and Millionaire Traders: How Everyday People Beat Wall Street at its Own Game.