‘There’s a time for everything.’
Indeed, it seems quite the clichéd quote, but most of us can learn from it.
There’s a time when there are fluctuations in the market, and there’s moments when markets are dead quiet. You can make money trading in both markets.
So, is there really a best time to trade forex?
Let us explain…
Time is money
Imagine forex is like an office. There’s one office for each continent around the world ― each office operates 24 hours a day, five days a week.
The forex market is similar.
But it doesn’t operate in normal ‘business hours’.
Instead, forex turns over the ‘Open Now’ sign in four different parts of the world, with corresponding time zones. There is one unwritten rule that exists for the forex market, though. The unofficial closing time is 5:00 p.m. New York Time daily.
Then the next day starts.
The first to open its doors to the forex market is New Zealand, followed by the Asian, European, UK and American sessions. Trading sessions across the regions can overlap, such as the UK and US. That said, throughout the day, certain times have higher volume.
For example, forex is similar to a restaurant manager who prepares for the lunchtime and dinnertime periods. During these hours, a higher number of customers visit the restaurant and the restaurant manager needs to be prepared.
Forex is the same.
The time when most people are trading is reflected as greater volume in the forex market. Generally, while Asian sessions are quiet, American and British sessions result in higher trading activity.
Why does the matter?
It’s important for you to realise the good times to trade. It’s useless spending all day staring at the computer screen. Some sessions are better than others. So make life easier for yourself and target the good times to trade your edge.
Note, as the trading volume increases, so does the volatility. That’s when most forex traders make the most money. Remember, there are four hours where the American and British trading sessions overlap every day. It’s within this period where the most number of trades are processed. That’s when the biggest markets are open at the same time as well.
What time should you trade forex?
Like many things, the answer isn’t straightforward. But there isn’t too much to worry about, if you’ve mastered the market’s timings and schedules.
London trading sessions open between 7:00 a.m. to 8:00 a.m. GMT, or 3:00 a.m. EST. New York starts at 1:00 p.m. to 2:00 p.m., or 8:00 a.m. EST. The openings of these markets tend to have the best trading opportunities for most forex traders.
As mentioned earlier, the overlapping of trading sessions can be ideal for you. The overlapping takes place from 8:00 a.m. to noon EST. Another overlapping timeframe to note is the Sydney/Tokyo markets. They meet at 2:00 a.m. to 4 a.m. That said, while these times might not be as promising as the former, they still offer excellent trading opportunities.
When changing between sessions, though, it is essential to remember that any trader’s sentiments can change. For example, when switching from New York to the Asian trading session, it can result in a price direction change.
What day should you trade forex?
Nearly everyone hates Monday!
It’s back to work for the average person.
But things are different in forex…
The market is open 24 hours, five days a week. That means forex traders don’t have to bury themselves at work for five days straight.
Forex traders can choose when they want to go into battle.
Remember, the trading volume varies within a trading session. There are four major sessions and the trading volume isn’t the same every day. Some days there’s more activity, while others have less. Similarly, a late-night jazz club has more customers drinking on Fridays than Mondays.
In terms of forex trading, the highest number of trades tend to happen on Wednesday or Thursday. For this reason, naturally, those are the best days to conduct your trades if you like volatility.
There is far more opportunity on these two days to profit.
Let’s dig deeper…
What month should you trade forex?
Each forex pair has its own trend, seasonally speaking.
These trends give forex traders a good idea of when to trade.
Simple is better.
For example, when it comes to stocks, the January Effect is an event when shares usually perform better from December 31 into early January. In forex, US dollars tend to rise during the earlier parts of the year and go down into around August. AUD currencies tend to improve and peak from April to August.
Each forex pair is different.
USD/JPY, a major forex pair, experiences more influential seasonal trends. Rising into early May, then falling into August. After that month, it takes a significant swing lower into around October.
Mind you, seasonality isn’t perfect ― there’s no perfect repeating trend. If there was, everyone would be rich! Just know that there’s seasonality in forex pairs. If you see seasonality, you can potentially profit from it.
When not to trade forex
We said earlier that there is a time for everything.
That means you should trade at certain times.
As mentioned earlier, the New Zealand market is the first to open its doors by one hour. When the New Zealand market opens, there’s not much trading and there’s extremely thin volume for that reason.
Significant price spikes can happen in this opening hour.
Also, when the forex market’s closed on the weekend, significant news can happen over those 48 hours. Traders await for the New Zealand market to open. Therefore, it’s easy to see why markets can spike on little volume.
Pay close attention to your trading positions.
Generally, as the weekend approaches, forex traders close their positions. The rule of thumb: If you don’t have to, don’t hold positions over the weekend. You don’t know what macro news could happen, such as a major political event.
Likewise, when making your first trade for the week, it’s essential to keep a watch out for the big boys ― the American and British forex traders ― who move the market in the direction it tends to follow for the week. Remember, they come into work after the Asian, Australian and New Zealand forex traders. I suggest waiting for the big boys to enter the arena on the opening day of the week before making your move!
What are the best timeframes to trade forex?
When trading forex, there are many timeframes available on charting platforms. When referring to timeframes, it means a specific time used to ‘make’ one single candle. If you don’t know what a candle is, take a look at the picture down the bottom of this section. The green and red sticks are candles.
Candle stick timeframes can range from a minute to a year.
A five–minute candle is a five–minute timeframe, to state the obvious.
What timeframe is the best to trade forex?
Newbies often start with smaller timeframes when getting into forex trading, usually ranging from one– to 15-minutes candles. That’s because the lower the timeframe, the faster the candles close and move on to the next.
That makes forex trading feel more exciting!
Forex trading done correctly should be boring. It’s super repetitive in most cases ― not exciting. The only counter argument we can think of is trading fundamentals. Analysing and trading news events is somewhat exciting, since it’s more interesting than staring at charts, like in technical–based trading.
Then again, if successful, fundamental trading should be straightforward and boring.
I’m not telling you that you shouldn’t enjoy trading.
But if you find your emotions going up and down like a rollercoaster, you’re doing something wrong. Unfortunately, smaller timeframes are notorious for being wild and erratic, and therefore lead to confusion. That causes over-trading, which can lead to major losses.
Larger timeframes, such as the four-hour candles and daily chart, are the best way to start trading forex. In fact, these are the exact timeframes that most professional traders use.
The longer the timeframe, the better the signal reliability.
Think about it this way…
One-minute candles are made using only a minute’s worth of data, while daily candles are worth 24 hours of data. Do you think one minute or 24 hours’ worth of information is better and more reliable for decision making?
It doesn’t take a genius to know the answer.
The more time spent to form the candle, the more information there is to make a decision.
As you learn to trade forex, you should start trading the four–hour or the one–day chart, as they’re more reliable. It sounds boring, and is certainly more so than the one–minute chart! But do you want to make money trading forex or have fun?
I know my answer.
Trading larger timeframes will give you a fighting chance to succeed. If you get good at trading larger timeframes, you can move to lower timeframes. But, note, most algorithms are trading the lower timeframes and that’s why it’s more of a rollercoaster ride. Remember, I’m not dismissing smaller timeframes.
Just trade them when you’re a gun forex trader ― not when you’re not profitable.
Your ‘Start With Forex’ takeaway
There’s lots to learn to become a consistently profitable forex trader.
Hopefully the pieces are slowly coming together for you.
I realise that we haven’t addressed any specific trading strategies or setups yet.
Remember, you need to walk before you can run, and an important part of learning to walk is knowing when to trade and on which timeframes. Without knowing when to trade and when not to, and which timeframes to avoid, you’re bound to make the same mistakes of every losing forex trader.
I’d actually be surprised to know how many readers skipped this lesson.
It’s a little dry.
I hope that you found it useful. But there’s so much more for you to learn. In the next lesson, we’ll get into the practical stuff. If you’re ready to learn how you use limit orders like a pro in forex trading, click here.
To your trading success,
Start With Forex
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