You have probably heard that Forex is a market open 24 hours a day and because of that it is better than other markets.
Well, it is true that this market is open 24 hours a day and that we can trade in it without any problem even when we get home at 10 pm after a long journey out.
What is more, if we want we can open a trade, go to bed and next day see what happened, knowing that the market did not close at night.
We can also set up the alarm wake up very early and see if we can make some pips, something that I tried myself in the past, thinking that by doing that I had discovered some sort of trick (you need something more than waking up early to succeed in Forex).
Great! is not it?
The best hours to trade Forex
Well, as I said in previous articles not all that shines is gold and in this case it applies as well.
Apart from that, let us try to find what the best moment to trade Forex is.
Because it is open 24 hours and it is traded by the entire World we have some intervals in which the markets are more volatile in some currencies depending on what the opening time is in each country.
This is valid for any currency.
For instance, when the market opens in Turkey we normally should expect high volatility there, or the same for any other country.
This is what usually happens.
However, in Forex, where major pairs dominate the landscape, we will have three great sessions that marc the great moves and volumes.
These regions are:
- Europe: with London as its core
- America: with New York
- Asia: with Tokyo
These three regions are the ones that guide the rest of the market with their currencies: dollar, yen and euro.
To have an idea how the week starts, on Monday morning Tokyo opens, later London and when the former is about to close New York opens, having that the American and Asian sessions have little interaction.
What is the Forex region with more interaction?
The European one, with base in London.
When Tokyo closes there come the opening in London, which coincides with the close, therefore we can see huge volatility in the major European and Asian pairs: EURJPY, GBPJPY, and even the USDJPY.
Later, when New York opens, London has still 4 hours of session, which gives us probably the most important 4 hours in the Forex market, where the big moves occur between the American and European pairs.
For example, the Non Farm Payrolls occurs at 12:30 pm in London, just when the American market is started.
As you can see, the moment where it is supposedly best to trade Forex is when there are interactions between the different regions, which would give us from 8 to 10 am in London and 1 to 4 pm in the same city.
Although there will always be significant moves before those times, like when Frankfurt opens at 7 am London time or 12 am when there are major American announcements.
Therefore, if you live in UK, for example, it is supposed that the best time to trade Forex goes from 7 am and 12 am onwards, until 4 or 5 pm when the London market cools down.
If you live in the United States therefore the best time to trade Forex should be early in the morning, say from 7 am to 12 pm in New York. Different will be in Los Angeles.
In this sense it seems that Europe has an advantage.
In terms of volatility it seems that the most volatile session is the European one.
One way in which we can see this effect of the different regions is by taking one volatility indicator like the ATR (Average True Range) and see the charts.
If we use a 5 minutes candlestick chart for the EURUSD with an ATR of 14 periods we get some sort of pattern in the indicator.
Those peaks and bottoms in the ATR mean that there are certain effects in the different sessions.
The EURUSD is a very strong pair in the American and European sessions, which you can easily grasp in the chart with the Asian session being the one with less volatility.
If we analyze the USDJPY chart we see different pattern but again some peaks and bottoms that mark us the most volatile times.
In this case it seems that the most important session is the American but surprisingly the European and the Asian are quite similar, especially when the European market has its session coinciding with the Asian one.
Well, after explaining all this there come the question: Do you really believe that the European traders have an advantage by being able to trade more hours of volatility?
My sincere answer is that not.
The only advantage that London has is that it can take a bigger share of the overall market and be the Forex capital of the World.
This is, therefore, very good for the brokers in the City, who see as the World traders are very active during most of their session.
For traders I do not think that having more intraday volatility is good per se since the real problem of this market is the day market itself.
This is the problem: thinking that because you can trade more volatility and news you will have more chances to win is a big mistake.
This is why my advice is to stay away from the intraday market as much as possible.
If you are a scalper it is true that the European session presents lots of opportunities.
Some people say it is the Frankfurt opening, others the New York one, other before the news, others after the news, other say that it is the Asian traders the best in the World, etcetera.
You will find all kinds of opinions.
What you will find it very difficult is a system you can use to win consistently in the Forex market for years.
That, my friend, is very difficult to do.