5 Trillion worth transactions per day, 24/5 Forex market hours — these are the main catches that entice Forex traders to start trading. But in reality, should you trade every minute and second? Let’s break the myth — know the 3 best trading session in Forex, when high impact trades occur and recur. (There are 9 such insane myths in Forex trading. Get to know it here)
Let us define the major sessions of the Forex market first, which helps you to understand the logic behind the formulation of best Forex trading sessions.
4 Major sessions in the 24/5 Forex market hours
Traders sleep (of course, when they don’t have open positions), but the Forex market doesn’t.
If one exchange closes, the other opens, like the revolutions of Earth were emphatically designed to facilitate Forex trading.
The early risers who kick-start the trading at 10 PM GMT(the previous day itself).
They set the tone for the day, especially for AUD/USD and NZD/USD pairs.
It opens precisely at 12 AM GMT and closes at 9 AM GMT.
Japanese yen is among the top 3 highly traded pair and the pairs like USD/JPY, GBP/JPY, EUR/JPY, AUD/JPY and NZD/JPY take essential cues for the day’s trend during the open hours.
The laborious industrial city London’s Exchange functions from 8 AM to 5 PM GMT.
Since the London Metal Exchange (LME) is fixated here, commodity currencies in forex like AUD/USD, USD/CAD, NZD/USD take cues during these market hours.
GBP/USD pair also has its highest impact during these hours.
New York Exchange
The parent market and the mighty of all. It opens at 1 PM and closes at 10 PM GMT.
The initial few hours will be tantalizing, being highly volatile, for traders. However, as the day wears out, the market tires out too. All the major pairs will be significantly active during the New York Session.
3 best trading session in Forex
Had you watched the trade timings closely, you would have noticed that there are 3 instances, out of the 24×5 forex market hours, during which the function time of any two exchanges overlaps. These 3 instances are the best time for a trader to enter short-term trade or day trade.
#1- Best trading session – 12 to 7 AM GMT
It is the prime time to trade if you are an Asian.
Most of the Asian markets- Japan, Hong Kong, Chinese are open and are fully active.
The economic news released from Australia and New Zealand, also adds fuel to the volatility.
#2- Best Trading session – 8 to 9 AM GMT
It is the dawn of the Tokyo session and the dusk of London Session.
Any trading market across the world has its impact at the start of a session and close of the session. Hence, when two major exchanges’ opening and closing time overlap, it is the time for liquidity.
#3- Best trading session – 1 to 5 PM GMT
The highest impact session of the forex market hours. Wicks are common phenomena during this period.
Most traders regard it as the best trading session, while few avoid trading this volatile session.
When it is summer in Australia, it is winter in New York and London.
Likewise, when it is summer in London and New York, it will be winter in Australia.
For your convenience, we have given the best trading sessions in EST too.
The best trading session does not guarantee profits
The best trading session is the one which has room for liquidity, at the same instance, volatile enough to move to your target in a quick period, out of the 24×5 forex market hours.
However, if you have a wrong strategy in place, the market can move towards your stop-loss too.
To make profits, one has to master the art of placing take profit and stop-loss.
If you are in profits, and any of the sessions mentioned above kick-starts, it is better to put a trailing stop-loss in place. These sessions have the potential of going 50 pips either side on a typical trading day.
So, backtest whether your strategy for the particular trading session and then trade it.
Forex market operates 24 hours on the weekdays.
The best trading sessions among the 24 hours are 12 to 6 AM, 7 to 9 AM and 1 to 3 PM GMT.
You have to create the right strategy for each session to capitalize on the volatility and liquidity factors.