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Timing is Everything: The Best Times to (and not to) Trade Forex

   

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As you probably already know, the forex market is open and active 24 hours a day, seven days a week. Traders can log onto a trading platform at any time to move currency around, but this doesn’t necessarily mean that people should be trading around the clock. 

When trading forex, timing can often be everything, as there will always be good times to trade and not-so-good times to trade. To ensure that you only trade at the optimum moments, the following details the best times to trade forex, along with the times when it’s well worth staying away from the market.

Best Times to Trade

  • Monday afternoon

Monday mornings may very well be a time to avoid when it comes to trading, but Monday afternoons are a different story. This is because the market really does start to warm up, with trading volume increasing. Again, you can’t expect the forex market to reach peak liquidity during this time, but it’s still well worth taking a peek at the market when Monday afternoon rolls around. 

  • When multiple trading sessions overlap

London ranks as the busiest trading session, with New York not being too far behind. As this is the case, you can expect the session overlap to be a busy period that provides plenty of trading opportunity. Many professional traders (or at least those who trade full time) often consider 14:00 GMT to be the optimum time to enter the market, as it’s the time period in which London is drawing to close and many are awaiting the shift to New York. While price movements can be choppy and somewhat unpredictable during this time, the big swings open the door to greater opportunities for profit.

There is another overlap between Sydney and Tokyo that occurs between 12:00 GMT and 07:00 GMT —while not as prominent as London/New York— it still proves to be a smart time to trade.

  • During times of high liquidity (i.e. Tuesday through Thursday)

Things certainly pick up during Monday afternoons, but the forex market doesn’t reach peak liquidity until Tuesday at the earliest. The forex market is most noticeably active during the middle the week, specifically Tuesday mornings through to Thursday. If liquidity is what you’re after, look to keep the bulk of your trading locked to the middle of the week, as it’s when trading activity is at its height.

  • London Session

Every trading session (or window) has the potential to get extremely busy, but of all the trading sessions, one remains far busier than all others. The London sessions (sometimes listed as the European sessions) are known for being the times when trading peaks, with approximately 30 percent of all trades taking place during these windows.

Worst Times to Trade

  • Late Sunday/early Monday

Looking at the worst time to trade forex, there is nothing more slumber-inducing than the late Sunday/early Monday crossover. During this time everything remains slow and in many ways functions as a reassessment period, with many using the crossover to plan for the week ahead instead of actively trading. The larger percentage of investors avoid making trades as the new week dawns, so it’s fair to say that you should do the same.

  • National holidays

National holidays are unavoidable, but the free time you have on these days isn’t something that you should translate into trading activity. Banks are one of the biggest influencers on the forex market, so their closure on holidays is a telling sign. When they’re not open and operating, the volume of forex transactions being carried out is greatly reduced. This can lead to a static market or erratic price behavior. Either way it does not follow the normal pattern, so it’s best to avoid trading altogether.

  • During major news releases

The forex market is driven by financial reports, economic data, and political updates, with the temptation being to trade when these grip the market. While doing this may put you at the heart of action, unless you have a firm understanding of how to trade the news, it’s recommend that you stay away. Updates, data, and reports can have an unpredictable effect on the forex market, especially when news arrives unexpectedly. Track major news releases through a forex economic calendar, so you can stay ahead of what’s coming and not be caught out.

  • During times of strange price action

There will be times when a forex pair throws up strange price action, without any notable rhyme or reason. Random moves may give the market an exciting feel, but what they generally make for is rocky trading terrain. This means that it can be extremely difficult to grasp what is causing such price shifts and the general market sentiment. For that reason, when strange price action occurs it’s best to wait out the storm until the bizarre market behavior concludes.

  • Asian sessions when liquidity is lower, particularly near end-of-day crossover time

Low levels of liquidity, which plague Asian sessions, rightfully represent a red flag. The amount of resources traded during Asian market sessions is often very low, so the average pip movements are too low to cover the high spreads of the Asian currencies. This is especially true near the end-of-day rollover time.

Popular Forex Currency Pairs to Trade

Along with identifying the most popular trading windows to time forex trades, it’s also helpful to be aware of the most popular currency pairs that will be regularly traded among global forex traders. The more familiar you are with these popular currency pairs, the more effectively you’ll be able to consider them in your trading strategy, and understand their price activity in relation to other pairings on the market.

Some of the most popular currency pairs include:

  • EUR/USD. By volume, this is the most popular forex pairing, and the currencies involved represent the two largest economies in the world. Its sheer size and liquidity makes EUR/USD more stable than other currency pairs with lower liquidity, which makes it a popular safe-haven pairing when traders are looking to move funds out of volatile positions.
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  • USD/JPY. For traders seeking a safe-haven pairing that has a foothold in the eastern economies, USD/JPY is a great choice. Like EUR/USD, it offers good liquidity and stability, and can be more insulated from economic events occurring in western economies. At the same time, its location in Asia can make this pairing more influenced by economic news and events taking place in eastern countries.
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  • GBP/USD. While GBP/USD has always been a major currency pair in terms of popularity, volume and the economies the currencies represent, Great Britain’s exit from the European Union has separated the British Pound a little bit more from the Euro, which has increased its volatility but also created opportunities for diversification and profit-seeking.
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  • EUR/GBP. Although this is a minor currency pair due to the absence of USD, EUR/GBP is still important and potentially lucrative for traders, especially in light of Brexit and the increased economic separation between these currencies. Political and economic rifts between Great Britain and Europe have increased volatility and trading volume for this currency pair, which can be attractive to traders looking to time positions around evolving news and events.

Useful Forex News and Economic Report Resources

If you’re serious about timing trades to maximize profit potential, you’ll need to keep up on current news and economic reports that may directly affect the prices of your currency pairs. While these reports will be specific to individual currencies and/or the data you value most in your trading strategy, some of the most common and influential news and reporting resources include the following:

  • Financial news organizations. This includes Reuters, The Wall Street Journal, MarketWatch, and other publications focused on economic news. 
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  • The U.S. trade balance report. This report offers data on the balance of imports and exports in the United States, which carries big implications for USD and other related currencies.
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  • Nonfarm Payroll Employment Report. This report tabulates the jobs added or lost in the United States for a given month.
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  • Foreign economic reports. If you hold or are targeting positions for currencies from a particular country, identify the specific reports and report release dates that have had a strong historical impact on those currencies.

For a good all-around tool to track economic news around the globe, start using an economic calendar such as MQL5. This resource will organize information and help you track the economic news that matters for your forex trading.

Why It’s Hard to Time the Market

Successful forex trading is all about timing. But timing the market is much easier said than done. If you’ve traded on traditional stock markets, you understand that the strategy of trying to time trades around recessions and discounted buying opportunities almost always costs you in the long run. That’s because while these price movements and corrections are inevitable, their timing can be unpredictable.

A good trading strategy can help you predict the timing of these trades with some accuracy, but no strategy is foolproof. A wide range of variables can affect price movement and the timing of those movements, and while some—such as economic reports from governments and reliable chart patterns—might be easier to track and trade around, others—such as breaking economic or business news, or sudden changes in trader sentiments—can be tough of even impossible to predict.

As a trader, your best approach to timing is to build a trading strategy that accounts for as many variables as possible, and helps you identify opportunities where you can anticipate the timing of price movements with some accuracy—even while understanding that, over the long run, you’re not going to guess it right every time.

Why It’s Important to Stick With a Strategy

While timing plays a crucial role in scoring wins and profit on the forex market, discipline in executing your trading strategy is equally important in laying the foundation for long-term trading success. Each trader’s trading strategy is their own personalized blueprint to build sustained success that aligns with their respective trading goals. Your strategy is unique to you, incorporating the patterns and indicators you prefer and accounting for your own individual risk threshold when considering trading opportunities.

A successful trading strategy is built for long-term success, but that doesn’t mean it will pay off with each trade you make. The real problems start to crop up only when a run of poor returns shakes your faith in your trading strategy. Too often, traders lose their discipline and start chasing profit opportunities by overemphasizing data points, trends and other information that isn’t corroborated through a more process-oriented trading strategy.

In other words, traders get unnerved by bad results, and they go rogue—abandoning proven trading strategies in hopes of earning back what they’ve lost. Most of the time, they only dig themselves into a deeper hole.

Conclusion

Forex trading success is undoubtedly built upon a foundation of commitment and execution, from education all the way through to trading strategy development. On top of that, timing also plays a key role, arguably a more important role than most people probably realize, allowing you to truly pick your moments. Thanks to the above information you now have a firm grasp on when you should and shouldn’t be trading forex.

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Disclaimer:

The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.

This post was written by Graeme Watkins

CEO Valutrades Limited, Graeme Watkins is an FX and CFD market veteran with more than 10 years experience. Key roles include management, senior systems and controls, sales, project management and operations. Graeme has help significant roles for both brokerages and technology platforms.

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