The 24-hour forex market is divided into three major trading sessions: the London session, the US session, and the Asian session. Each of these sessions corresponds to a major geographic market center and has its own unique characteristics and tendencies, presenting opportunities for traders to employ effective strategies throughout the day.
Despite the forex market being highly liquid, there are periods when volatility is consistently high, and other times when it is relatively low. Being aware of these different forex session times can enhance the reliability of a trader's forex trading strategy.
In this article, we will delve into each forex market session, discussing their distinct features such as forex time zones and how they influence trading activities. Understanding these aspects can empower traders to make more informed decisions and maximize their potential gains in the forex market.
WHAT ARE THE MAIN TRADING FOREX SESSIONS?
The main forex trading sessions are typically categorized into three distinct periods:
1. Asian session (Tokyo session)
2. European session (London session)
3. US session (New York session)
Traders can benefit from understanding the specific timings of each forex trading session as it allows them to tailor their trading strategies to the prevailing market conditions and take advantage of the higher liquidity and volatility associated with these active periods.
| SESSION | MAJOR MARKET | TIME (GMT) |
|---|---|---|
| US | NEW YORK | 13:00 - 22:00 |
| ASIAN | TOKYO | 00:00 - 09:00 |
| EUROPEAN | LONDON | 08:00 - 17:00 |
THE ASIAN TRADING SESSION
The Asian trading session marks the first opening of the forex market, with Tokyo being the primary center of activity. During this session, numerous significant players in the market closely observe and analyze the trading momentum in Asia. They use the trading activity in this session as a basis for developing their trading strategies and as an indicator for predicting future market dynamics. Despite the forex market being highly active worldwide, only around 6% of all foreign exchange transactions take place during the Asian trading session.
THE EUROPEAN TRADING SESSION
The European trading session, particularly in London, holds the distinction of being the largest and most crucial forex trading session globally, representing approximately 34% of the total daily forex trading volume. This session is of paramount importance due to London's dominant position in the forex market, attracting most of the world's major banks to establish their dealing desks there.
The London forex market boasts a significant number of participants, and the transactions conducted during this session involve substantial values. As a result, the London session tends to be more volatile compared to the other two trading sessions.
The influx of liquidity from the multitude of participants in London can have a considerable impact on the "average hourly move" of major currency pairs, such as EUR/USD. The chart provided below illustrates this statistical data based on different times of the day, clearly indicating a notable increase as the European trading session commences at 03:00 ET (08:00 GMT).
In summary, the European trading session, centered in London, plays a vital role in the forex market, commanding a significant market share of daily trading volume. The high number of participants and substantial transactions during this session contribute to increased volatility, which can be advantageous for traders seeking trading opportunities. The surge in liquidity during the London session can substantially influence the price movements of major currency pairs, presenting potential profit opportunities for astute traders.
US TRADING SESSION
The New York trading session is the second-largest forex market, responsible for handling approximately 16% of the total global forex transactions. A significant portion of the trading activities in New York occurs during the overlap period between the US and European trading sessions. As this overlap happens, the forex market experiences heightened liquidity and increased trading volume. However, as European traders gradually exit the market, the transaction pace slows down, and liquidity starts to dry up.
Observing the previous chart, you can notice a green dot around 08:00 ET (13:00 GMT), which represents the time when the US trading session comes online and overlaps with the remaining active period of the European session. During this overlap, the average movement of currency pairs increases even further due to the higher trading activity and market participation. This period of increased volatility continues until the London session ends, indicated by the red dot around 12:00 ET (17:00 GMT).
In summary, the New York trading session ranks as the second most significant in the forex market, handling approximately 16% of global forex transactions. The highest trading activity in New York usually occurs during the overlapping period between the US and European sessions, which results in increased liquidity and trading volume. However, as European traders gradually exit the market, trading activity and liquidity begin to decline. The chart highlights the green dot during the US/Europe overlap, where average movement is higher, and the red dot marks the end of the London session and a decrease in volatility.
WHAT IS THE IDEAL TIME FOR TRADING?
The best time to trade in the forex market depends on your preferred trading style and the currency pairs you are interested in. Based on data from TradNx over the past decade, European currency pairs have shown higher success rates when traded between 19:00 to 11:00 GMT. During this period, liquidity is relatively low as the US session has little to no impact, making it suitable for range-bound trading strategies that rely on indicators like the Relative Strength Index (RSI).
For day traders who prefer range-bound strategies, which involve buying at support levels and selling at resistance levels, the ideal time to consider trading is during the late US session into the Asian session, from 19:00 to 07:00 GMT. During these hours, the European currencies tend to exhibit more stable price movements, providing better opportunities for range-based trading approaches.
On the other hand, day traders who prefer breakouts and trend-following strategies should focus on the period when the European session comes online until it goes offline, from 08:00 to 17:00 GMT. This time frame tends to witness increased market activity and liquidity due to the participation of major European players, facilitating better conditions for breakout and trend-based trading.
Additionally, traders interested in trading the Asian currencies such as AUD (Australian Dollar) or NZD (New Zealand Dollar) may find opportunities during the Asian session, as this aligns with the active business day for these home currencies. During this period, breakouts in the Asian currency pairs may occur, offering potential trading opportunities.
However, it's essential to avoid attempting to trade breakouts of European currencies during the Asian session, as the markets for these currencies are less active during off-hours. Trading during this time may lead to frustration, as the markets tend not to move as much.
In conclusion, the best time to trade in the forex market depends on your trading style and the specific currency pairs you wish to focus on. Traders employing range-bound strategies may find success during periods of low liquidity when the US session has less influence, while breakout and trend traders should consider the active hours when the European session is operational. Being mindful of the specific characteristics of each trading session and its impact on different currency pairs can significantly improve trading outcomes.
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