written by: Steve McFarlane•edited by: Jason C. Chavis•updated: 9/10/2011
Currency prices are constantly on the move, but there are some trading hours that seem to be more profitable for traders. It's important for success to identify when these times are and what might cause the market to be active.
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Once the currency market opens on Sunday afternoon (eastern time), it goes 24 hours for the entire week until Friday. So while it is possible to find many trading opportunities during opening hours, there is no doubt that there are some periods when it is more profitable to trade.
Finding the best times to trade the forex market involves determining what are the forces that move the market and then resolve to trade when those forces are at play. By-and-large currency trading facilitates commercial and consumer transactions as well as the strategic currency reserve moves of sovereign nations. While it is not always possible to determine when these forces will impact the market, it is possible to accurately predict when other forces will cause major moves.
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When Major Markets are Opened, Especially Session Overlaps
Finding the best times to trade FX can be as simple as determining when the largest number of market players are active. Look for the times when the largest economies are open and also any overlap in their opening times, as this indicates when the greatest international trade volumes are possible. For example, if you live in New York, you are likely to see significant market moves between 1:00 am to 3:00 am as the European session opens.
At around 8:30 am EDT, the market may see another significant price move when New York opens for business. The sheer trading volume that results from both markets being open is another factor that causes significant market activity. Try and trade between 8:00 and 12:00 am EDT to profit from the New York and European session overlap if you like to trade big market moves. Here is a summary of when the major markets are open:
Sydney 6:00 pm – 3 am
Tokyo 7:00 pm - 4:00 am
London 3:00 am – 12:00 pm
New York 8:00 am – 5:00 pm
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Major Market Events
Economic data releases, Central Bank announcements and earnings reports releases are some of the events that cause major exchange rate moves. For the most part, traders tend to make trading decisions based on the performance of the economy on a macro level and companies on a micro level. In other words, you stand to profit from major moves when economic news events such as trade balance data releases, Interest Rate decisions and monetary policy decisions are scheduled. Figure 1. shows a news release at the start of the New York session that caused a big move.
A good economic calendar will show the schedule of the news releases and also rate the likelihood that such events will significantly impact the market; these are normally rated on a scale of high, medium or low. With an economic calendar in hand, you can forecast significant market moves down to the second.
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Days to Avoid
Since the market is moved by economic activity, it is best to avoid the markets when there is a holiday or when major markets are closed. That said, it is a good idea to stay out of the market on Sundays and major holidays, dependent on your trading style of course. Not trading when there is little market activity is generally a good idea because the market lacks direction and the cost of trading is usually higher, owing to the fact that brokers generally charge higher spreads.
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Trade the Times your Trading Strategy Works Best
With little regard for when major market events occur, the best times to trade are the times that your trading system works best. There are some persons who do not trade when economic data is being released because the volatility and wide trading spreads that brokers often impose on traders make trading these events treacherous at the least. For instance, if you prefer scalping, it may be best to wait for the market to settle down before you go searching for your next 10 pips.
With the knowledge that there is much trading opportunity in the early market sessions, you may be tempted to get up early and trade that session, but not everyone will trade well in a sleep deprived state. It may be better for you to sleep through those profitable sessions if your brain is not sharp in the early morning. As an extreme remedy, you may consider moving to a time zone that allows you to take advantage of the most lucrative trading hours within the regular trading day. For example, if you currently live in the US but find it too taxing to wake up early and trade the European session, a move to London is an option you may want to consider if you are serious about trading fulltime.
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When all is said and done, the best time to trade the forex market is the time that works best for your trading style and lifestyle; you must be comfortable trading. Even so, you place yourself at a significant trading advantage when you know when market-moving events are going to occur and make an effort to take advantage of those moves.