May 17, 2010

My Breakdown Of The Forex Trading Day From 00.00 To 24.00

This will be my last post for a while as I'm heading off to Prague in a few days time for a week's break (providing the volcanic ash has cleared away by then). Anyway I thought I would write about the average trading day and discuss each period of the day, including which times of the day are the best times to trade in my experience.

All of the times below are UK time, ie GMT (or BST at the moment), so you may want to use a website such as this one to convert these times into your local time if you're not based in the UK.

00.00 - 06.00

This is arguably the quietest period of the day for the major currency pairs because the European traders are tucked up in bed and the US markets have finished for the day as well. With such low volumes, most pairs are therefore confined to very narrow trading ranges during these hours making them very difficult to trade. Some of the pairs such as those relating to the Yen, the Aussie Dollar and the New Zealand Dollar may move on occasions, but this is generally a time to stay out of the markets.

06.00 - 08.00

After the narrow trading ranges of the overnight trading session, these couple of hours can often present you with some excellent trading opportunities as we approach the opening of the London and European trading sessions. You often get strong breakouts which are fairly easy to trade if you use a few indicators such as the Supertrend (changing colour), the ADX (below 20 but moving higher) or MACD (crossovers) for additional confirmation.

08.00 - 10.00

Now the markets really start to get interesting. Once 08.00 arrives all the traders are at their desks and ready to take positions. If there hasn't already been an initial breakout during the last couple of hours, you can be sure that the major currency pairs will start to make their move during this period. Therefore this is another excellent time to enter the markets if you are trading opening range breakouts or are simply using some kind of short-term trading system.

10.00 - 12.00

This is another decent time to trade but you will often find that the opportunity to trade possible breakouts has gone by now. Nevertheless there are still good trading opportunities available because the European markets are in full swing now.

12.00 - 13.30

As lunchtime approaches the markets start to get a little bit quieter now. Plus with the US markets opening and with US economic data announcements being made very shortly (which is generally most days except for Monday), traders are happy to sit on the sidelines before committing themselves to a position. In summary, this is not a great time to be opening new positions unless you are taking a position using the longer term charts, such as the 4 hour charts, for instance.

13.30 - 16.30

Not everyone around the world is available to trade during the opening hours of the European trading session (which is the best time to trade in my opinion), but the opening hours of the US trading session is another great time to trade because volumes are very high. You have major economic data releases that can move the markets and you also have the opening hours of the US markets overlapping with the closing hours of the London and European markets.

It's not an easy time to trade because prices can fluctuate wildly and the major price moves for the day may have already occurred, but as long as you wait for all the major data releases to be released, there are still some excellent trading opportunities available across the various currency pairs.

16.30 - 20.00

I usually shut up shop at 16.30 after the London market closes (although I will still keep an eye on the markets if there is an imminent EMA crossover on the 4 hour chart during this time). In general the markets are a lot quieter during these hours and are therefore not ideal for short-term traders, but you can still get decent trends and big price moves on occasions.

20.00 - 24.00

By this time of day the volumes start to drop off even more as the US markets start to close. So again this is not a time to be employing any kind of short-term trading system. I still open a few trades using my main 4 hour system if a decent set-up presents itself during this time, but it's not ideal because you can't monitor the position overnight. You simply have to set your limit price and stop loss and see what has happened when you wake up the following morning.

Final Thoughts

So to sum up, in my opinion the best time of the day to trade forex is the start of the European trading session (0800-1000) and the two hours from 0600 to 0800 if you want to make sure you catch some of the early opening range breakouts that occur every day on the major currency pairs.

If you can't trade during this time, I suggest you concentrate on trading the first few hours of the US trading session, although this requires a lot more skill as you have the major economic releases to contend with as well as extremely high volumes, and therefore big price swings.



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