It’s All Just A Matter Of Timing…
What makes the forex market so attractive to would-be traders isn’t just the fact that it’s the biggest financial market in the entire world. It’s also because the market is open 24 hours a day and traders will always have at least one opportunity for investment at any given moment in time… the markets never sleep, after all!
By that extension, naturally, you can probably expect to adjust your own sleeping patterns somewhat if you do want to see success as an FX trader – and if you’re not already a morning person, you might want to take some steps to make a few changes in this regard, so you can be ready to rock and roll at a moment’s notice. Time is money, so they say.
Our top tips to help you get to grips with all those early starts include setting yourself a consistent sleep schedule, having strong nighttime and morning routines, getting regular exercise and maintaining good sleep hygiene… all of which can help you wake up feeling refreshed, even if it’s 4am where you are.
You’ve got to be up and at ‘em to ensure you’re present when the various markets open and close. Trading opens each day with Australasia, then Europe and then North America, with the different time zones between continents making it possible for the forex market to stay open all the time, in some capacity or other.
Understanding time differences and what these can mean for your trading will form a key part of any successes or failures you see in your career as a trader.
They say that when God closes a door, somewhere he opens a window – and the same is true for forex markets. When one market closes, another will just be opening up and traders will also be able to take advantage of overlapping markets from time to time, which represent some of the most active – and most lucrative – trading periods of them all.
Forex trading hours
Make a note of the time that each market will open up in every participating country as a first step towards furthering your trading career. There is overlap in some time zones, but they are typically accepted as being:
- Sydney: 5pm-2am EST (10pm-7am UTC)
- Tokyo: 7pm-4am EST (12am to 9am UTC)
- London: 3am-12pm EST (8am-5pm UTC)
- New York: 8am-5pm EST (1pm to 10pm UTC)
Top note: Although the trading volume will fluctuate session by session, you’ll typically find that it is at its highest when the London afternoon and New York morning markets overlap, so this could be something of a sweet spot to try and hit as and when you can. Trillions of dollars in value are traded at this time!
If you prefer life as a day trader, you might find you’d rather avoid holding positions overnight, because even though the markets are closed they can still move at any moment and you could find yourself compromised when you wake up and check your trades.
Although the market does close at the weekend to retail traders, FX trading can carry on over the weekend through organisations like central banks. Price differences are often seen between the close on Friday and the open on Sunday, a difference that’s known in the ‘biz as ‘a gap’.
If you don’t want to risk your position at this time, all you need to do is close your position on the Friday and put limits in place to manage the risk. No nasty surprises… hopefully!
When is it best to trade?
Although the market is open 24 hours a day, five days a week, this doesn’t mean that all hours of the day are created equal where trading is concerned.
Being familiar with the overall market is a must, since the best time to trade is when it’s at its most active. If you have one or more of the four markets open at the same time, it’s an incredibly exciting time for traders and you’ll definitely feel a buzz of anticipation and thrill in the air. Positively palpable!
Between 8am and midday, the US and London markets overlap. Since price activity will be high at this time, you’ll find that this is the best opportunity to trade.
Between 2am and 4am, the Sydney and Tokyo markets overlap, with EUR/JPY the two main currencies affected – and therefore the best currency pair to set your sights on.
And between 3am and 4am, the London and Tokyo markets overlap. It would perhaps be best to put this one at the bottom of your priority list for now, since this overlap will see the least amount of activity because the majority of traders in the US will be in bed and an hour isn’t really enough time to see significant changes take place.
In terms of times to avoid, you could potentially have a lie-in on Monday mornings because it takes a bit of time for the market to warm up… but make sure you’re present and correct come the afternoon, so you can see what’s going on and plan the rest of your week accordingly.
You’ll likely find that it isn’t until Tuesday at the very earliest that you start to notice the market reaching peak liquidity (with liquidity referring to the ability of currency pairs to be traded without having a big impact on its exchange rate). Trading activity typically reaches its peak in the middle of the week, so this is something else to bear in mind.
The worst times to trade
In as much as there are profitable times in which to trade, there are also times that you might be wise to avoid if you want to maximise success and minimise failure.
The crossover between Sunday afternoon and Monday morning doesn’t hold much promise of gold for FX traders, so you can chill out with the paper and a leisurely yet healthy breakfast at the start of the week without having to worry that you’re compromising your position. You can rest assured that everyone else will be doing exactly the same, as well!
However, this does also represent an excellent opportunity to focus on other parts of your trading strategy, assessing the previous week and plan for the coming week accordingly – so perhaps a working breakfast could be a great habit to adopt on Mondays.
It’s also important that you hold firm on any trading positions if you’re expecting any major news releases, updates, reports, data and so on. This is why it’s so important to stay up to date with the daily economic news, so you can put a calendar together of major releases and plan in line with what’s coming up.
As you’re sure to already know, the forex market is affected by political news and updates, economic data and financial reports – and a hugely important part of being a successful trader means gaining a robust understanding of the news and how to react to what’s going on.
National holidays are also a time to avoid trading if you can avoid it. Because banks shut up shop at such times, forex trading transactions drop off significantly, which can mean you start seeing erratic market behaviour… and this can represent a real danger zone for traders, especially those just starting out – so it’s perhaps wiser to just steer clear where possible.
Our top tips for timing the market
Whether you’re a novice or an old hat trader, it can be difficult to get the timing of the market right, but it’s absolutely essential that you do if you want to see the kind of successes you’ve only dreamed about thus far.
Our first top tip is to come up with a trading strategy that covers you for as many eventualities and variables as possible, as well as helping you to time price movements more accurately. Of course, you won’t always get it right but a solid strategy will always help you predict trades more effectively as time goes on.
And our second tip is to not become too wedded to your trading strategy. Yes, it’s a necessary guide but you should always be prepared to see it evolve and develop, particularly as you become more aware of how markets work and how you can react in line with what’s happening.
It’s also important to make sure that you follow a robust risk management procedure as well, having stop losses in place and only trading those funds that you can realistically afford to lose.
If you’re keen to get started and are looking for a funded forex trading account, get in touch with the team here at FTUK to see what we can do together. You can trade where you like, when you like with us – all you need to do is join any of our funding programs and start building up your proprietary trading experience immediately.