Forex Trading Sessions - What is the best time to trade?
What are Forex trading sessions? What is the difference between the schedule of Forex trading sessions in summer and winter? Why is it better to trade in the American and European trading sessions, and not in the Asian session?
Hello, gentlemen, traders! You may get the impression that you can trade Forex at any time, since it is open 24 hours. Well, the market is really open 24 hours, but this does not mean that you can trade at any time. This is because the Forex market is not active all day. And if the market is not active, you will not be able to make money, since there will be no significant movements in the market. When should you trade? There are various trading sessions on the Forex market. However, we will not consider trading sessions of all countries. Nevertheless, we will focus on the three main Forex trading sessions, as the market is very active in these sessions.
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Forex Trading Sessions
Four main trading sessions can be distinguished in Forex trading:
- Sydney trading session;
- Tokyo (Asian) trading session;
- London (European) trading session;
- New York (American) trading session.
Forex Trading Session Schedule
The trading session schedule depends on the daylight saving time in the USA. For summer time (from March / April to October / November), the following trading sessions are relevant:
EDT - Eastern Standard Time (UTC-4), BST - British Summer Time.
For winter time (from October / November to March / April), the following trading sessions are relevant:
EST - Standard Eastern Standard Time (UTC-5).
From the tables above it can be seen that in some countries there are differences in the opening and closing times of trading sessions. This is due to the transition to daylight saving time and vice versa. From the table above, we can also notice that some trading sessions are traded at the same time. For example, in the summer from 3:00 to 4:00 Eastern time, Tokyo and London sessions are open. Similarly, in the winter from 8:00 to 12:00 EST, the New York trading session and the London session partially overlap.
Based on this, it is quite obvious that during the hours of overlapping trading sessions the market is extremely liquid and volatile, because there is a large volume of transactions on the market. Consequently, most traders prefer to trade during these busy market hours, as they can catch significant price movements.
Let's look at each trading session separately and find out which currency pairs are best suited for a particular Forex trading session.
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Asian Trading Session
Tokyo, the capital of Japan, is part of the Asian continent. The Tokyo session opens at 12:00 GMT (8:00 EST). Since Tokyo is the financial capital of Asia, the Tokyo session is also sometimes called the Asian trading session.
If we talk about statistics, then, since the Japanese yen is the third most traded currency, it accounts for 16.5% of all operations in the Forex market. And 21% of all Forex transactions occur during this session.
The table below shows the average number of pips of some major currency pairs during trading in the Asian trading session.
What you need to know about the Asian trading session?
Although the trading session is called Tokyo, this does not mean that the market is driven only by Japan. There are millions of transactions from other Asian countries such as Hong Kong, Singapore and Sydney.
Japan is one of the largest exporters in the world. Thus, along with central banks, there are exporters who also participate and drive the market.
During the Asian trading session, market liquidity is sometimes low. In addition, most pairs begin to move in a narrow range. For this reason, some traders prefer not to trade during this session. However, some traders are preparing to take action in anticipation of a breakthrough before the session closes.
Moreover, there are a number of traders who do not trade at this session, but they analyze what happened at the Tokyo session, so that they can take action in subsequent sessions when liquidity rises.
What currency pairs should you focus on in the Asian session?
During a trading session in Tokyo, news traders can concentrate on trading currencies such as AUD, NZD and JPY, because it is the Asian trading session that receives news about these currencies.
Stronger movements can be expected in Asian-Pacific currency pairs such as AUDUSD and NZDUSD, compared to non-Asian pairs such as GBPUSD and EURUSD.
Since Japanese companies are actively working with the yen, of course, we can expect more currency movement paired with the yen.
China, like Japan, is a major trading player. Thus, whenever news from China arrives, they tend to increase market volatility. Moreover, as Australia and Japan rely on Chinese demand, significant movement in pairs with AUD and JPY can be expected.
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European trading session
At a time when Asian markets are preparing to close their market, European markets are preparing to open their trading floors. The European trading session opens at 3:00 AM EST (7:00 AM GMT) and closes after eight hours of intensive trading.
There are several financial centers in Europe, but the main trading is concentrated in London. Consequently, this session is often referred to as the London trading session.
London is considered the capital of the Forex market. And it is not surprising that business people make thousands of transactions every minute at this session. Moreover, 30% of global transactions are processed during the London session.
The volatility of most currency pairs during this session is usually very high. The table below shows the approximate number of points in different pairs for the European trading session.
What you need to know about the European trading session?
The London trading session intersects with two other major trading sessions - the session in Tokyo at the time of its closure and the session in New York at the time of its opening. In this regard, during this time a huge amount of money enters the market. Consequently, this creates high liquidity and possibly lower spreads.
London is a key financial center, therefore, during this session, the highest volatility is observed.
During the Asian session, the market usually consolidates and moves in a range. But when the European trading session opens, the market traditionally goes beyond the range and the trend begins. And this trend usually continues until the opening of the New York session.
Please note that in the middle of the European trading session, market volatility tends to decrease. The reason for this may be that at this time, traders take a break for lunch. Also, traders can wait for the start of the New York session to revive trading.
If the market was trending at the beginning of the London session, this does not mean that it will continue further. The reason for the trend reversal may be that traders take their profits at the end of the session.
What currency pairs should you focus on in the European session?
During the London trading session, you can choose any currency pair for Forex trading, because during this session there is a huge trading volume.
However, it is recommended to trade only the main pairs, such as EURUSD, GBPUSD, USDCAD, USDCHF and USDJPY, since these pairs have very narrow spreads. Another reason to stick with these pairs is that news reports about these currency pairs usually come during this session, increasing their volatility even more.
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American Trading Session
After five hours of trading during the London session, the American trading session opens in New York at 8:00 a.m. EST when Europeans return from the lunch break.
As we recall, the Tokyo session is known as the Asian session, the London session is known as the European session, and the session in New York is also called the American trading session.
Regarding volatility, the New York trading session is after the London one. In other words, the movement of points on major currency pairs is less in the American session compared to the European session, but more than in the Asian session.
The table below shows the movement of points in various major currency pairs during the American trading session.
Based on the table above, we can make sure that the average movement of points during this session is 62 pips. In addition, the most volatile currency pairs are pairs with USD and some pairs with JPY.
What you need to know about the American trading session?
As already mentioned, when the New York session opens, it coincides with the London session. Therefore, you can expect high volatility over this period of time.
Economic news usually appears at the beginning of the New York session. And, according to statistics, about 85% of transactions are related to the US dollar. Thus, if strong news related to the US economy is received, this also leads to high volatility in currency pairs with the US dollar.
When European markets begin to close their trading, volatility gradually decreases. This usually happens at lunchtime during the American trading session.
On Friday afternoon, trading volume becomes very weak because weekends for Asians and Europeans begin.
In addition, on Fridays, it is highly likely that the markets will turn in their direction, as American traders close their positions to stay away from news events on the weekend.
What currency pairs should you focus on in the American session?
Market volatility during the imposition of European and American trading sessions is very high. Thus, you can trade literally any pair of your choice. However, it is recommended that you stick to major currency pairs and avoid trading exotic pairs.
News related to US data could dramatically change the dollar. Therefore, news traders must carefully monitor the US dollar to catch these sharp movements.
If you are just starting to trade in the Forex market, then the American trading session will be preferable, since its volatility is not as high as during the European session, and not as low as in the Asian session. However, you should refrain from trading during the release of important news, as due to a sharp increase in volatility, your transactions may be knocked out by stop loss.
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Thus, we examined the main Forex trading sessions, as well as the schedule of trading sessions. Now you know that the most volatility is observed during the European trading session, and at this time you can trade any major currency pairs. During the American trading session, volatility is not so high, but it can rise sharply during the news release related to the publication of economic reports in the United States. In the Asian session, many currency pairs, with the exception of pairs with AUD, NZD and JPY, can move in the lateral range, so it is better for beginners to refrain from trading. And the greatest growth in trading was observed at the close of Tokyo and the opening of the London sessions, as well as at the close of the London and the opening of New York trading sessions.
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