Understanding the Forex trading sessions and how they operate can put you in the best position to take advantage of those various sessions and make the most money possible from your trading. If you become skilled at working through various sessions, then there is no reason why you can’t be a profitable trade no matter the time of day or night. That said, just because the market is open 24 hours a day does not mean that you should trade it during that entire time. Rather, you should try to learn how to play the various trading sessions to your advantage. You don’t want to get burnt out, and you don’t want to make bad trades because you didn’t take the time to learn a little more about how these various sessions operate.
The 3 Trading Sessions
Technically, there are 4 trading sessions in the Forex market if you want to get specific, but most of the best traders focus only on the 3 broadest definitions of a session when they think about their trading. Those sessions are the Asian, North American, and European sessions. If you wanted to break them down farther, they can be defined as the New York, London, Sydney, and Tokyo trading sessions. That said, sticking to the big 3 is the best way to go when formulating a trading strategy.
New Zealand is the first to open as it is technically Monday morning in New Zealand even as it is still Sunday in the rest of the world. That said, the session is referred to as the Sydney session (despite the fact that Sydney is in Australia!). It will be 5pm EST on Sunday in the United States when the first markets open up in New Zealand. That is when the Forex market formally opens for the week. It will not stop trading until 5pm EST on Friday. It is open around the clock and is the most liquid of all asset markets in the world. Most US-based traders tend to shy away from trading all that heavily in the New Zealand session, particularly at the beginning of the week. Most prefer to continue to enjoy their Sunday afternoon instead, and there is not all that much liquidity to go around during those trading hours anyway. Unless this happens to be the only time that you can actually sit down and trade, it makes more sense to steer clear of this trading session for most people. There are safer waters elsewhere, and you don’t want to find yourself swimming upstream in losses to start the week.
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New York Close
The Impact of Daylight Savings Time
Check your watch and your calendar carefully before you open your browser to start trading. There are factors that will impact when the markets are opened or closed, and you want to ensure that you always take the time to know what is going on. Daylight Savings Time is a big factor on these trading hours in some countries. The United States, The United Kingdom, and Australia all recognize a form of Daylight Savings Time during different times of the year. The months of October, November, March, and April are the ones to watch out for and be aware of. You might want to check your watch to ensure that you don’t start trading an hour too late or early. Remember, major data drops happen through the trading day, and you might miss some major market volatility if you are not on top of things.
An astute reader may have noticed that some of the trading sessions overlap in their hours of operation. This means that there are trades happening both in the New York session and the London session at the same time for example. It is important to notice these overlap times and perhaps to take advantage of them. When traders in New York and London are all in the mix making their trades, it becomes easier to find some value in making trades because there is even more liquidity in the markets than normal. You may see moves in currency pairs that you have never seen before, and other factors can come into play as well.
Data drops and news events that occur in the middle of these trading session overlaps tend to be huge. Traders who like to ride the waves of volatility could do a lot worse than to make their plays during this time and see what happens. They may just make the bulk of their money by grabbing those big moves as they come along. It is not uncommon at all for some traders to seek out the best times of the day like this to set up their plan of action and make the attack. They just need to be prepared to strike at a moment’s notice, and those who work in the session overlaps are well aware of this.
The London session is the busiest of all, and you can see that in this chart of average pip movements, compiled by BabyPips:
You can bet that the movements are even bigger when the New York and London sessions overlap. This is the time when things can get really exciting, and when the tone for the day tends to be set for many currency pairs. Think about getting yourself in front of a computer to trade during these volatile times. Just make sure you know what you are doing if you are a newer trader.