February 10, 2017
Although the forex market is open around the clock, the volatility of the market changes with different trading sessions. It’s impossible for a trader to track every price movement, and that’s why you should know what the best times to trade the forex are. If you are a beginner, this could look unimportant to you – but you should learn the different characteristics of the major market sessions as early as possible, because it can make a real difference to your learning curve.
The best time to trade is when the market is most active and volatile – this is when you will find the most trading opportunities. If there is not much movement in the market and it’s calm, you could waste your time waiting for a trade setup. There are other tips that you could implement depending on the trading sessions that you are trading, and we’ll get into those in just a bit.
The Four Major Trading Sessions
What you need to know from the get-go is there are four major trading sessions – the New York session, the London session, the Tokyo session and the Sydney Session. The following table shows the open market hours for each of the sessions, including the difference between summer and winter times.
The Asia-Pacific trading sessions, which include Tokyo and Sydney, are the markets that open the forex trading day. They usually offer lower volatility compared to the London and New York sessions, and are more suitable to risk-averse traders as the lower volatility also decrease the associated risk. Risk-tolerant traders, on the other hand, are better suited with the US and European sessions, especially during their overlap, which creates the most volatile trading hours of the day and offers plenty of day-trading opportunities. These traders also use the Asia-Pacific session to get a feeling about the market momentum, so they can prepare their trading strategies before London and New York opens.
As you can see from the table above, there are certain times during the day when sessions overlap. The most significant is the overlap of the New York and London trading sessions, between 8:00 AM and 12:00 PM EST. This is the time when most of the daily trading volume occurs, as companies and banks start their day and daily operations. The volatility during these few hours of overlap rises significantly, and this is the time when you will find the most trading opportunities – especially if you are a day-trader or scalper.
Around 85% of all trades involve the U.S. Dollar, and these pairs are especially volatile during the New York and London overlap. Another minor overlap happens between 3:00 AM and 4:00 AM, when the European and Asian sessions overlap. However, the market volatility during this overlap is far lower than during the New York and London overlap, and offers only a smaller number of trading opportunities.
Disclaimer: The pip values were calculated using past averages and are not absolute values. These values can vary depending on volatility and liquidity
Now that you have a basic understanding of what forex trading sessions are, what their opening and closing times are and which are more suitable according to your risk profile, let’s explain each of the sessions in more detail. We will start with the opening of the trading day in the Land of the Rising Sun – the Asian/Tokyo session.