Best Time to Trade Forex

Many newcomers jump right into the forex market. They keep an eye on different economic calendars and trade intensely on every data update, seeing the forex market, which is open 24 hours a day, five days a week, as a convenient place to trade all day.

This technique cannot only easily deplete a trader's reserves, but it can also burn out even the most persistent trader.

So, what are your options if you do not want to stay up all night? If traders can grasp the market hours and set appropriate targets, they would have a much better chance of making money within a reasonable timeframe.

In this guide, we are going to breakdown the best time to trade forex. If you are just beginning your forex journey, it will be good to know when to trade forex, as it can save you tons of hours. 

So, let’s get started.

Forex trading sessions

It would be futile to discuss the best time to trade forex without giving details about forex trading sessions. So, here are the four forex sessions:

Note: all hours are mentioned in EST (Eastern Standard Time). 

1. Sydney

The trading day officially starts in Sydney, Australia (open 5 p.m. to 2 a.m.). Although it is the smallest of the mega-markets, it sees a lot of initial activity when the markets reopen on Sunday afternoon, as individual traders and financial institutions attempt to regroup after the long pause that began on Friday afternoon. 

2. Tokyo

Tokyo, open from 7 p.m. to 4 a.m., was the first Asian trading center to open, and it now accounts for the majority of Asian trade, just ahead of Hong Kong and Singapore.

USD/JPY, GBP/CHF, and GBP/JPY are the currency pairs that see the most action.

Because of the Bank of Japan's (Japan's central bank) strong control over the economy, the USD/JPY is a particularly good pair to watch when the Tokyo market is the only one available.

3. London

London opens from 3 a.m. till noon. The United Kingdom (U.K.) controls the global currency markets, with London as its most important part.

According to a BIS survey, London, the world's central trading capital, accounts for roughly 43% of global trading.

Since the Bank of England, which sets interest rates and regulates the monetary policy of the GBP, has its headquarters in London, the city has a direct effect on currency fluctuations.

Forex patterns often originate in London, which is important for technical traders to note. Technical trading entails analyzing statistical patterns, momentum, and market action to spot opportunities.

4. New York

Since the U.S. dollar is involved in 90% of all markets, New York, which opens at 8 a.m. till 5 p.m., is the second-largest forex exchange in the world, and international investors closely watch it.

The New York Stock Exchange can have a strong and immediate impact on the dollar. As businesses combine, mergers, and acquisitions are completed, the dollar will immediately gain or lose value.

Forex market sessions

Forex market sessions

 

Session overlaps

The best time to trade in the forex market is when one session overlaps the other. Each exchange is open weekly from Monday to Friday and has its own trading hours, but the four most important time periods for the average trader are as follows (all times are in Eastern Standard Time):

  • 3 a.m. to 12 p.m. in London
  • 8 a.m. to 5 p.m. in New York
  • 5 p.m. to 2 a.m. in Sydney
  • 7 p.m. to 4 a.m. in Tokyo

Although each exchange is self-contained, they all deal in the same currencies. As a result, when two exchanges are involved, the number of traders actively buying and selling specific currency skyrockets.

Bids and asks on one forex exchange have an immediate effect on bids and asks on all other open exchanges, narrowing market spreads and increasing volatility.

Here's how it works:

1. London-New York

This is when the real thing begins! The busiest time of day is when traders from the world's two largest financial centers (London and New York) compete.

According to an estimate, more than 70% of all transactions occur when these markets collide since the USD and the EUR are the two most common currencies to trade. Since volatility (or market activity) is big, this is the best time to trade.

2. Sydney-Tokyo

Sydney/Tokyo overlap starts at 2 a.m. to 4 a.m. EST. While not as volatile as the U.S./London overlap, this time span also provides an opportunity to trade during a period of higher pip volatility. Since these are the two key currencies affected, EUR/JPY is the best currency pair to strive for.

3. London-Tokyo 

This session overlapping begins from 3 a.m. to 4 a.m. EST. Because of this overlapping (most U.S.-based traders will not be up at this time) and the one-hour overlap, this overlap sees the least amount of activity of the three.

Best times to trade forex

Best times to trade forex

Other factors to consider

Although knowing the markets and how they overlap will help a trader plan his or her trading schedule, there is one factor that should not be overlooked: the news.

A major news event has the ability to boost a typically sluggish trading time. Currency can lose or gain value in a matter of seconds when a major announcement about economic data is made, particularly if it contradicts the forecast. 

Despite the fact that hundreds of economic releases take place every weekday in all time zones and impact all currencies, a trader does not need to be aware of them all. It is critical to distinguish between news releases that need to be watched and those that should be tracked.

In general, the greater economic growth a country achieves, the more positively foreign investors view its economy. Investment capital continues to migrate to countries with strong growth prospects and, as a result, good investment opportunities, resulting in the strengthening of the country's currency.

Furthermore, a country with higher interest rates through its government bonds draws investment capital as foreign investors pursue high-yielding opportunities. Stable economic growth, on the other hand, is closely linked to favorable yields or interest rates.

So, when is it best to trade forex?

Some currencies have the best trading sessions. The yen, for example, is more advantageous to exchange during the Tokyo session, the U.S. dollar during the New York session, and the pound, franc, and Euro during the London session.

The explanation for this is easy to understand. The primary currency holders enter the market, right movements begin, liquidity increases, and forex market volatility follows.

In addition, there is no important news on Monday either. The exception may be only extraordinary events that occurred on the weekend.

It's now time to explore how the forex trading week goes. After all, any trader with some experience would tell you that the forex market is different every day, with different market activity, price actions, and trading signals.

Let’s look at each trading day separately so you can get the full view.

On Monday, the market appears to be in a reasonably calm state. The explanation for this is that, oddly enough, everybody, including traders, has a poor Monday. There are no predictions for future price movement, and there are no investment ideas.

Traders finally get their act together on Tuesday and get to work. This is the most important day of the trading week because it is on this day that the market becomes structured. There are movement in the market and, in most situations, signs to join it.

The most famous trading days are Wednesday and Thursday. This is because the market's strongest and most important moves occur on these two days. In addition, because we saw entry signals on Tuesday, we made major profits on Wednesday and Thursday, while someone lost a lot of money.

By Friday, market activity has slowed significantly. Traders tend to close positions so that they do not remain open throughout the weekend. Only news or figures released by the end of the week may sustain volatility.

How forex week goes

How forex week goes

When not to trade?

Because of its hours of operation, forex trading is peculiar. The week begins on Sunday at 5 p.m. EST and ends on Friday at 5 p.m. EST.

Not every hour of the day is ideal for trading. When the market is most active, it is the best time to trade. There will be a heightened trading environment when more than one of the four markets is open at the same time, which means there will be more substantial fluctuation in currency pairs.

Bottom line

When creating a trading schedule, it is critical to take advantage of market overlaps and keep a close eye on news releases.

If you want to grow your profits, trade during more volatile times while keeping an eye on the release of new economic data.

Part-time and full-time traders can set a schedule that gives them peace of mind, understanding that opportunities will not be lost if they take their eyes off the markets or need a few hours of sleep.

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