Those of you interested in Forex have probably noticed that trading results depend on the time of the day. This phenomenon can be easily explained when looking into the concept of trading sessions. Forex is a 24/5 market, which means that currency pairs are traded around the clock Monday to Friday. It is possible thanks to the combination of four overlapping trading sessions that facilitate continuous trading. Due to various factors, volatility changes throughout the day. And as you know, trading results will depend on volatility. So, what is the best time to trade?
As seen in the picture above, volatility is different throughout the day, which, in turn, means that the number of trading opportunities and potential profit (or loss) will also depend on the time you trade. The higher the volatility the higher the risk-return ratio. More than that, each trading session has a number of distinct characteristics that traders might find worth knowing.
Pacific (10 PM — 7 AM GMT+1)
This is the first trading session of the day. It is the least volatile and massive price swings are not generally expected. Experienced traders do not usually trade during the Pacific session (due to low volatility), yet it is still possible to analyze the market and start making predictions. Currency pairs with AUS and NZD are quite popular during this session (which doesn’t necessarily mean that these are always the best assets to trade).
Asian (1 AM — 10 AM GMT+1)
Tokyo, Singapore and Hong Kong stock exchanges are active during the Asian session. Currency pairs that include the Japanese Yen are actively traded during this session. The number of active traders and volatility go up. The end of this trading session is usually more volatile than its beginning.
European (8 AM — 4 PM GMT+1)
London and Frankfurt are the most important financial markets in Europe. This session overlaps with the Asian session in the beginning and the American one closer to its end. During this section volatility has a tendency of going up. European currencies, including EUR, GBP, CHF, enjoy higher popularity (however this does not necessarily mean that trading these currencies will be successful).
American (1 PM — 10 PM GMT+1)
American, Canadian and Brazilian markets operate during this trading session. The American trading session is the most volatile and aggressive of all four. Market participants pay a lot of attention to major news and announcements that get published during this session. USD and CAD are actively traded during this time.
It is also worth noting that currency pairs that correspond to a particular region will have higher volatility during the respective trading session (like AUD for Pacific and JPY for Asian trading sessions). Traders are supposed to adjust their behavior to a particular trading session.
So, what is the best trading session and when should you trade? Well, there is no clear answer to this question, as trading opportunities are numerous and can present themselves on all four session. Still, experienced traders stick to the periods of high volatility, namely the European and American session. Novice traders may find it useful to try trading on all 4 sessions in order to familiarize themselves with their respective feature. And of course, the choice of optimal trading hours will depend on your location, as there is no need to stick to an unusual/unhealthy trading schedule.Trade now