For those interested in Forex, it is worth noting that the trading results depend on the time of the day. This is a phenomenon that can easily be explained when looking into the concept of trading sessions. Forex is a 24/5 market, which means that currency pairs are traded around the clock Monday to Friday. This is possible thanks to the combination of four overlapping trading sessions that allow this continuous trading. Due to various factors, volatility changes throughout the day. And as you know, trading results will partially depend on volatility. So, what is the best time to trade?
You can appreciate in the image above, that volatility is different throughout the day, which, in turn, means that the number of trading opportunities and potential profit (or loss) will also depend on the time you trade. The higher the volatility the higher the risk-return ratio. Also, each trading session a certain number of characteristics that traders might find worth knowing.
Pacific (10 PM — 7 AM GMT+1) First trading session of the day. It is the least volatile of all four and, in general, massive price swings are not expected. Experienced traders do not usually trade during the Pacific session (due to low volatility), yet it is still possible to analyze the market and start making predictions. Most popular currency pairs include AUS and NZD during this session, which does not necessarily mean that these are always the best assets to trade.
Asian (1 AM — 10 AM GMT+1) Hong Kong,Tokyo and Singapore stock exchanges are active during the second session. Currency pairs that include the Japanese Yen are actively traded during this session. The number of active traders starts to go up, and so does volatility. The end of this trading session is usually more volatile than its beginning.
European (8 AM — 4 PM GMT+1) Probably the most important financial Markets in the European session are London and Frankfurt. This session overlaps with the Asian session in the beginning and with the American one closer to its end. During this section there is a tendency for volatility to go up. European currencies, including EUR, GBP, CHF, enjoy higher popularity. However, again, this does not necessarily mean that trading these currencies will be successful or recommended.
American (1 PM — 10 PM GMT+1) American, Canadian and Brazilian markets operate during this trading session. The American trading session is the most volatile and aggressive of all four. Normally, traders in these markets pay close attention to major news events and financial announcements. Currency pairs including the USD and CAD are actively traded during this time. It is also worth noting that currency pairs that correspond to a particular region will have higher volatility during the respective trading session (like AUD for Pacific and JPY for Asian trading sessions). Traders are supposed to adjust their behavior to a particular trading session. So, what is the best trading session? When should you trade? There is actually no clear answer to these questions. All four sessions offer different and numerous trading opportunities. Experienced traders normally prefer the periods of high volatility – the last two: European and American. It can be a good practice to try trading on all four to get to know each one of them and familiarize themselves with their features. The actual choice of an optimal trading time will depend on your location and experience. Just make sure you feel confident and remember there is no need to stick to any unhealthy trading schedule.