The forex trading session in New York is renowned for its high liquidity. The most liquid time of the day occurs when the US session overlaps with the London forex market session.
NEW YORK FOREX SESSION: WHEN DOES IT BEGIN?
The New York forex session commences at 8:00 AM ET and concludes at 5:00 PM ET. The point of "overlap" arises when the US Forex session coincides with the London forex market session, which starts at 3:00 AM ET and ends at 12:00 PM ET. Therefore, the overlap period spans from 8:00 AM ET to 12:00 PM ET.
Within this overlapping time frame, the characteristics of the US session's trading activity may closely resemble those observed during the London session.
Typically, the commencement of the New York forex session exhibits higher levels of volatility compared to later hours in the day. Traders have various techniques at their disposal to effectively trade in varying degrees of market volatility.
HOW TO TRADE THE 'OVERLAP' WITH THE NEW YORK BREAKOUT STRATEGY
The term "overlap" refers to the specific time when the London and US forex sessions coincide, creating a four-hour period of simultaneous trading activity. As these two sessions represent the world's largest market centers, this overlap period witnesses significant and rapid fluctuations due to the influx of substantial liquidity into the market.
The image depicted below illustrates how, during the overlap phase (highlighted by the green lines) of these two major markets, the average hourly price movements in the EUR/USD currency pair reach their peak levels.
To capitalize on the heightened volatility observed during the overlap between the London and US forex sessions, traders often employ a break-out strategy.
For instance, consider the New York breakout strategy applied to the EUR/USD currency pair:
When the EUR/USD exhibits a triangle pattern formation, the price tends to break out of this pattern during the overlap period. Once a trader has effectively addressed risk management measures, they can initiate the trade by strategically identifying and utilizing relevant support and/or resistance levels for their entry into the market.
THE LATER PART OF THE NEW YORK SESSION: HOW TO TRADE EFFECTIVELY
As the London forex session concludes for the day, there is a noticeable trend of significantly reduced volatility. Referring to the chart displaying the average hourly price movements of the EUR/USD currency pair, we observe a distinct change in market behavior during the later segment of the US forex trading session:
During this later period, after London's closure, the average hourly price movements in the EUR/USD demonstrate a markedly different tone, with a notable decrease in volatility compared to the earlier hours when the London and US sessions overlapped.
Indeed, as depicted in the chart, the later phase of the New York forex session exhibits decreased volatility. Due to the smaller average hourly price movements during this period, traders often adopt a range trading strategy to capitalize on these market conditions.
A range trading strategy involves leveraging support and resistance levels in the price chart. The chart provided illustrates an example of this strategy in action. When the price approaches the upper bound (indicated by the red line), traders will consider opening short positions on the currency pair. Conversely, when the price nears the lower bound (marked by the green line), traders will contemplate initiating buy positions on the currency pair.
The rationale behind using a range trading strategy lies in the notion that as volatility diminishes, support and resistance levels become more robust and are likely to hold. This aspect works in favor of the range-bound trading approach, making it potentially profitable in periods of reduced market fluctuations.
THE NEW YORK SESSION: WHICH FX PAIRS TO TRADE FOR THE BEST RESULT
The New York forex session presents excellent opportunities for trading in major currency pairs, such as EUR/USD, USD/JPY, GBP/USD, EUR/JPY, GBP/JPY, and USD/CHF. These pairs are particularly favored during the US session due to their high liquidity, with EUR/USD being especially advantageous during the overlap with the London session.
Each forex trading session, including London, New York, and Asia, possesses its distinct characteristics and follows one another in succession.
The ample liquidity during the New York session contributes to narrower spreads, translating to lower trading costs for traders. Moreover, the overlap period benefits from a combination of heightened volatility and increased liquidity, which proves advantageous for most forex traders seeking profitable opportunities.
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