Apart from knowledge, skill and being financially literate, having good timing completes the list of ingredients that make up a good trader–no matter what market you choose to invest in. So if you’re just starting your trading journey, we suggest you hone these “ingredients” to amp up the chances of you getting good gains when trading.
But today, we’re going to be tackling good timing! And if you’re a forex trader, you know good timing is essential to bag a good profit. The forex market may be open 24 hours, 5 days a week but only at certain times of the day, week or month can you bag a hefty cash-out!
So to help you know the best times to trade the forex market, below is a rundown to consider:
1 – During the overlapping of major trading sessions
A great time to trade is when the market is the most active! When major financial centres overlap, this is an ideal time to make your move since this is the time the market is in optimal condition for market participation and liquidity. To give you examples of major overlapping sessions, here is a rundown:
- London/New York overlap – This takes place around 8:00 AM to 12:00 PM EST. This is the busiest time for trading, when both the New York and London sessions are operating at full capacity at the same time. It is an ideal window for implementing strategies across a range of asset classes because of its elevated volatility and strong trading volumes.
- Tokyo/London overlap – This takes place around 3:00 AM to 4:00 AM EST. While not quite as hectic as the London/New York overlap, there are still plenty of trading chances during this session. Traders may profit from the confluence of two big markets—Tokyo and London—by taking advantage of price changes and market sentiment.
- Sydney/Tokyo overlap – This takes place around 7:00 PM to 2:00 AM EST. This time frame represents the Asian and Pacific markets’ busiest hours and provides traders with an insight into the dynamics of these areas. Even though these overlaps are often less busy than the others, it’s still a critical period for market players trying to manage and profit from changes in the commodities and currencies linked to these markets.
2 – During the opening and closing times of major exchanges
Major exchanges’ opening and closing hours are when volatility often spikes, making these times crucial for traders everywhere–giving them the chance to earn twice or thrice as much. Here’s a deeper look at the progression of these events:
- Opening of the London Stock Exchange (3:00 AM EST) – The currency markets see a spike in activity and volatility when the London Stock Exchange opens, marking the beginning of the European trading session.
As liquidity rises due to an influx of orders from institutional investors, hedge funds, and retail traders alike, dealers prepare for rapid price changes. The tone for the day’s trading is established at this time when market players keep a careful eye on economic data releases, geopolitical developments, and pronouncements from central banks to assess the mood of the market and adjust their positions accordingly.
- New York Stock Exchange closing (4:00 PM EST) – Traders across the world get ready for yet another frenzy of action in the currency market as the New York Stock Exchange’s final bell rings, signalling the conclusion of the U.S. trading day.
Increased volatility is common during the closing hours as traders race to close positions, rebalance portfolios, and respond to any last-minute developments that might affect currency values. This time frame is crucial for forex traders since it can result in large price fluctuations due to order flows and positioning changes before the market closes.
3 – During economic data releases and news events
Economic data and news events have a big impact on currency markets. They may cause abrupt changes in currency prices and open up profitable trading opportunities for shrewd investors.
Traders from all around the world look forward to these important dates on the economic calendar because they offer insightful information about the state of economies and the future movement of currency pairings. Let’s examine a few significant events:
- Interest rate decisions – Central banks’ announcements on interest rate adjustments have a big influence on the value of currencies.
- Employment reports – Information about non-farm payrolls (NFP) in the United States has the potential to affect trading patterns and market mood.
- Reports on the PMI, GDP, and inflation – This offers information on the state of economies and has the potential to influence exchange rates.
4 – During high-volume currency pairs
Some currency pairings show clear trends in their trading, fluctuating in terms of both liquidity and volatility throughout different trading sessions. Comprehending these characteristics can help traders make better judgements and tailor their trading plans. Here is a rundown to consider:
- EUR/USD, GBP/USD, USD/JPY – These important currency pairings are most often traded at the times when the London and New York sessions overlap and are well known for their liquidity.
A large amount of the volume traded in forex globally comes from the European and American markets, which increases liquidity and enables more seamless price discovery for these pairings.
Because of the increased activity and many trading chances during these sessions, traders swarm to the market to take advantage of the convergence of market participants and the flow of economic news to profit from price swings.
- AUD/USD, NZD/USD – Due to their significant exports to Asia, Australia and New Zealand’s currencies are especially vulnerable to changes in the economy and commodities markets of the area.
As a result, trading activity in these pairs often peaks during the Asian session as traders respond to ASEAN-wide news releases, economic data, and market sentiment. The Asian and European sessions’ overlap may also be a factor in the higher volatility of certain pairings.
5 – Steer clear from times of low liquidity
Even if the forex market is open from Sunday to Friday, there are times when there is less liquidity, which can lead to larger spreads and increased slippage risks. Due to reduced liquidity following the weekend break, traders frequently steer off of late Friday and early Monday sessions, which improves trading conditions for better execution.
Take away
Now you know the 5 best times to trade in forex, your chances of big gains are now at hand’s length! So if you ever ask yourself how to trade forex or when to trade forex, well all you gotta do is check out the list above whenever you start to wonder.
