For those that follow Forex closely, you may have noticed that trading results really depend on the time of day. This is because Forex is a 24/5 market: the currency pairs are traded around the clock, from Monday to Friday. This is possible because of four overlapping trading sessions, allowing for continuous trading. A range of factors means that the volatility changes throughout each day and, as you know, trading results depend on volatility. So, with that being said, when is the best time to trade?
As you can see in the image above, volatility varies through the day, which subsequently means that the number of trading opportunities and the potential for profit (or loss), will depend on the time that you trade. The higher the volatility, the higher the risk-return ratio.
On top of that, each trading session has a number of unique characteristics that traders might find important.
Pacific (10PM — 7AM GMT+1)
This is the first trading session of the day. It’s also the least volatile and it’s not at all common to encounter massive price swings here. Experienced traders do not usually trade during this session, due to its low volatility. However, it it’s still possible to analyze this and to start making predictions based upon it. Currency pairs such as AUD and NZD are quite popular here, but it doesn’t necessarily mean that it’s always the best asset to trade.
Asian (1AM — 10AM GMT+1)
Tokyo, Hong Kong and Singapore stock exchanges are active during this session. Currency pairs that feature the Japanese Yen are actively traded during this time. Towards the end of this trading session is usually more volatile than the beginning.
European (8AM — 4PM GMT+1)
London and Frankfurt are both the most important financial markets in Europe. The beginning of this session overlaps with the Asian session, whilst the end overlaps with the American one. During this time, volatility tends to increase. European currencies such as EUR, GBP and CHF all enjoy a higher popularity, however, it doesn’t mean that the deals with them will all be profitable.
American (1PM — 10PM GMT+1)
American, Canadian and South American markets operate during this trading session. It is worth mentioning that the American one is the most volatile of all four sessions. Participants in this market pay attention to major news and announcements that get published during the session. Both USD and CAD are traded during this time.
It is also worth noting that currency pairs that belong to a particular region will have higher volatility during their respective trading sessions.
So, what can we determine from this in order to choose the best time to trade? Well, there is no one answer that fits all. Trading opportunities can present themselves during all four sessions. Advanced traders tend to stick to periods of high volatility, in particular, the European and American sessions. For the more novice traders, it may be useful to try trading on all four sessions to familiarize themselves a little more. Note that the choice of optimal trading hours will depend on your location. There’s no need to stick to an unhealthy trading schedule: opportunities may present themselves on all four market sessions.