1.14 Best Time of the Day to Trade Forex

Criteria for selecting the best time to trade Forex.
 
Before we jump into the ship let's first see what criteria we should have to decide on the best time to trade:
 
  • Big price moves and hence chances of more profits.

 

 

  • Your trading convenience.
 

Times of the day for Big price moves

 
Why the volatility increases and bigger price movements take place? When more people come to the trading floors and more volumes are bought and sold - Not a rocket science, right? Now, to identify those times is also not a rocket science. Simply speaking those times are when more than one geographic sessions are open simultaneously i.e. during session overlaps.
 
Pictures often say more than the words, so let's see how a random day in trading looks like. Let's have a look on the following EUR/USD charts of two different trading days:
 

EUR/USD Hourly price-action during different time zones:

 

EUR/USD chart shows major moves during the session overlap times - Chart 1
 
 
Another example of a Forex chart during different time zones.
 
Do we need to say more in words than these charts have spoken already? Simple, the volatility increases during the session overlaps and in many cases the big moves start just before the overlapping starts. 
 
The strategic London session overlaps with the Tokyo session for a couple of hours and with New York session in a big way. Let's see the overlap times in both summers and winters as indicated in the following screen shots. Please also note that trading starts earlier in the morning. In London session 8:00 AM GMT, in New York session starts at 8:00 AM EST and Tokyo at 9:00 AM local time. We also need to consider time differences in the different geographies associated with the same session. For example  London session does not mean only London but Europe and that way 8:00 AM in London is 7:00 AM in Germany. Similarly 8:00 AM in New York is 9:00 AM in Chicago.
 

Tokyo 6:00 PM is London 10:00 AM in summers and 9:00 AM in winters:

 
Tokyo and London session overlap time during summers.
 
Tokyo and London sessions overlap time during winters.
 

London 6:00 PM is New York 1:00 PM during both summers and winters:

 
London and New York session overlap time during summers.
 
London and New York session overlap time during winters.
 
So let's get back to the best time of the day to trade:
 

Tokyo and London session overlap

 
London is the kingdom of Forex trading but Japan has been the kingdom of retail Forex traders and Tokyo is also a major financial center of the world. As far as the retailThe best time to trade forex is during session overlaps. Forex trading is concerned, it is estimated that Japan contributes 30% to 40% of the global retail trading share.
 
The couple of hours when the Tokyo and London sessions run in parallel see an increase in the volatility in general as we have seen from the above charts.
 

London and New York session overlap

 
London and New York sessions enjoy a longer overlap and both being major global financial hubs bring the volatility much higher than the Tokyo-London overlap session. This is true for practically all important currency pairs but we need to give special focus to euro, US dollar, British pound and Swiss franc. The economic data from both Europe, USA and Canada coming in during this overlap also adds to the volatility, making it one of best times to put in the trades.
 
Towards the end of this overlap i.e. close to the U.S. lunch time you may see some consolidations in any ongoing trends because the traders in Europe may be winding of their daily positions.
 

Times for best floating spreads

 
Forex brokers who offer floating spreads, change the spreads during higher volatility. Checking on the spreads at the time you enter into a trade is also important. If the spreads are too high, it cuts into your profitability. The following chart is an example of floating spreads for EUR/USD from Oanda. The spreads are generally higher when the New York session is opening. Similarly the spreads may also be higher during when we are near the release of a very important economic release such as the non-farm payroll data from the U.S. 
 
Selecting the time to gain the best advantage of lower spreads.

Worst Times to Trade

 

Well, when there is a Best, there is always a Worst or several bad ones.

 

  • Monday Mornings (Asian session): It's better to avoid very early morning trading during the Asian session Monday mornings - most of the market players are sleeping during that time and market is yet to set direction for the week. Unexpected moves can take place when the major traders come into the play.

 

  • Major News Events: Unexpected GDP data, interest rate data, unemployment data and housing data etc from major economies can shake the market pretty badly and that in turn can turn your pockets inside out. It's always better to play safe when a major economic data is scheduled to be released.

 

  • Big holiday seasons for major economies: For example Christmas time when Europe and U.S. etc are closed but Japan and some other countries are open. Japanese yen pairs may be avoided when there are major holiday seasons in Japan such as first week of January, Golden week i.e. the first week of May and Obon holidays during August.

 

 
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