The Asian trading session, also known as the Tokyo session, is considered highly favorable for forex trading according to the TradNx Traits of Successful Traders series. Although it might not be as liquid and volatile as other major trading sessions, these unique characteristics actually make it appealing to experienced traders who know how to navigate it effectively.
During this trading period, specific Tokyo forex market hours are relevant for traders to keep in mind. The article aims to delve into the subtleties of this session, offering insights into its nuances and providing valuable ideas and strategies for traders to capitalize on when engaging in 'Trading Tokyo.'
WHEN DOES THE TOKYO FOREX EXCHANGE OPEN?
The Asian forex session kicks off the trading week on Monday mornings at 09:00 Japanese Standard Time (JST) and concludes at 18:00 (JST). For traders in London, this means they would need to be up from 00:00 (GMT) until 09:00 (GMT) to actively follow the Asian session in real-time.
It's important to note that the forex market operates 24 hours a day, so official starting times are somewhat subjective. However, the widely accepted practice is to consider the Asian session beginning when Tokyo banks come online, as they facilitate a significant volume of trades. The first substantial financial hubs to initiate the trading day are New Zealand and Sydney, Australia.
Here's a summary of the Asian trading times in major trading locations:
- Tokyo (Japanese Standard Time): 09:00 - 18:00
- London (Greenwich Mean Time): 00:00 - 09:00 (early hours of the morning)
- New Zealand and Sydney (Local Time): Initiates the trading day before Tokyo
Traders across different time zones can use this information to plan their trading activities during the Asian session effectively.
| TRADING LOCATION | MAJOR MARKET | *HOURS (IN LOCAL TIME) |
|---|---|---|
| Asia | Tokyo | 09:00-18:00 JST |
| Europe | London | 00:00-09:00 GMT |
| United States | New York | 19:00-04:00 ET |
The timings mentioned above are subject to adjustment during daylight savings changes.
During the Tokyo session, major economic centers in Europe and the US are not actively participating, leading to relatively low trading volumes during this period. The reduced participation from these significant financial hubs contributes to what is commonly observed as thin or limited trading activity in the Asian session.
Here are the top five essential points to understand about the Tokyo forex session:
1. Low Liquidity:
2. Low Volatility:
3. Clear Entry and Exit Levels:
4. Ideal for Sound Risk Management:
5. Breakout Trade Opportunities After the Close:
Overall, understanding the unique characteristics of the Tokyo forex session can help traders tailor their approaches, manage risk more effectively, and identify potential trading opportunities.
1. Low Liquidity:
The impact of lower liquidity during the Asian session is evident in the behavior of non-Asian currency pairs like EUR/USD, GBP/USD, and EUR/GBP. These pairs are less likely to experience significant price movements beyond their typical trading ranges. The chart visually illustrates this phenomenon by representing the Asian session with smaller blue boxes, while the larger red boxes depict the more active London and US sessions. The contrast in box sizes highlights how the Asian session's lower liquidity tends to restrain price movements compared to the higher activity witnessed during the London and US sessions.
2. Low Volatility:
As the Asian session receives the primary liquidity flow into the forex market, price movements during this period are generally more restrained compared to the London or US sessions. The image below visually demonstrates the level of volatility experienced by currencies throughout the day. The chart reveals that during the Asian session, price movements tend to be smaller, resulting in lower peaks, indicating lower volatility. In contrast, outside of the Asian session, particularly during the London and US sessions, currencies exhibit higher peaks, signifying more significant and volatile movements in the market.
3) Clear entry and exit levels:
During the Asian session, the forex market tends to adhere to distinct levels of support and resistance, providing traders with clear entry and exit points for their trades. By combining these key levels with signals from technical indicators, traders can enhance the likelihood of making successful trades.
4) Ideal for sound risk management:
The relatively calm and slow-paced nature of the Asian session offers traders an opportunity for more effective risk management. With lower volatility, traders can carefully analyze potential risk and reward scenarios, making it easier to identify well-defined support and resistance levels that align with the current trading range.
5) Breakout opportunities after the close:
As the Asian trading session concludes, it overlaps with the beginning of the London session, introducing a surge in market liquidity. This increased liquidity often leads to breakout movements, where price breaks free from established trading ranges. Traders can take advantage of these breakout opportunities to identify new trends and potentially profit from significant price shifts.
WHICH FOREX PAIR HAVE THE MOST ACTIVITY IN THE TOKYO MARKET?
The choice of the most suitable currency pairs for trading during the Tokyo session varies depending on each trader's preferences and their specific trading strategies. Traders seeking higher volatility often focus on pairs involving the Japanese Yen (JPY), Singapore dollar (SGD), Australian dollar (AUD), and New Zealand dollar (NZD).
These JPY, SGD, AUD, and NZD crosses are known for exhibiting more significant price movements and increased trading activity during the Asian session, making them appealing to traders who seek opportunities in a more dynamic market.
Conversely, for traders who prefer less volatile currency pairs, the focus often shifts to non-Asian currencies, particularly pairs like EUR/USD, GBP/USD, and EUR/GBP, among others. These pairs generally experience more subdued price fluctuations during the Tokyo session, making them attractive to traders who prefer a calmer trading environment.
In conclusion, determining the best currency pairs for trading during the Tokyo session depends on a trader's risk appetite, trading style, and the level of volatility they seek in the market. By understanding these factors and aligning them with their trading strategies, traders can identify the most appropriate currency pairs to trade during the Asian session.
TIPS FOR TRADING SIDEWAYS MOVEMENT IN THE ASIAN MARKETS
Range trading finds a particularly suitable environment during the Asian trading session due to the increased adherence to support and resistance levels compared to the more liquid London and US sessions.
In the Tokyo forex session, two prevalent strategies are breakouts and range trading. Here, we'll focus on an example of a short position taken during range trading, but the same principles can be applied to long positions:
When engaging in range trading, traders aim to identify well-defined support and resistance levels within the Asian session. Once these key levels are established, a short position can be considered when the price reaches the upper boundary of the range (resistance level).
The rationale behind this approach is to anticipate a potential price reversal from the resistance level back toward the lower boundary (support level) of the range. By entering a short position near the resistance level, traders aim to profit from the expected downward movement within the range.
However, it's essential to exercise caution and confirm the validity of the trade setup using appropriate technical indicators and price action signals. Additionally, risk management should always be a priority, with appropriate stop-loss levels set to protect against adverse price movements.
While the example provided involves a short position, traders can apply a similar logic to long positions when trading ranges during the Asian session. The key is to carefully analyze the price action and identify suitable entry and exit points based on the established range's support and resistance levels.
Trade strategy: A range trading method is to look for selling opportunities when price is near the upper boundary of the range and buying opportunities when price is near the lower boundary of the range. Traders can use tools like the RSI and Stochastic indicators to identify when the market is overbought or oversold, which indicate potential reversal points. The Asian session is shown by the blue blocks on the chart.
Entry point: Using this strategy, traders should look for signals to buy when price is close to the lower boundary and to sell when price is close to the upper boundary. The stochastic indicator shows when the market is overbought, giving a selling signal (circled in blue). To confirm this, price has reached the resistance level and this offers a chance to enter a short trade.
Stop loss: A Stop can be placed above the resistance level as this is the level that prices have bounced off historically.
Take Profit: Professional traders always aim for more pips in their favor, compared to what they could potentially lose if the trade goes against them. This is called a risk to reward ratio and should be at least 1:1. In this case, if the market moves from the top of the range to the bottom of the range, the trader is targeting 80 pips while risking 30 pips, representing a 1:2.67 risk to reward ratio.
Range trading is likely to be less effective when the London and US sessions increase the market liquidity. The chart shows this, with a large breakout towards the downside before recovering back within the channel. Range traders use stops and limits to keep their exposure within the channel.
ASIAN BREAKOUT STRATEGY
The Asian breakout strategy aims to capitalize on significant price movements that occur when the London trading session begins at 00:00 GMT (04:00 ET). This session brings in a surge of trading activity, leading to potential breakouts that traders can predict.
On shorter timeframes like the five to 30-minute charts, traders watch for a candle to close either above or below the price range observed during the Asian session. If the price breaks below the range, traders can enter a trade and set a tight stop-loss order at the recent swing high.
When determining a target level for the trade, traders take into consideration the number of pips from the top to the bottom of the observed trading range. They then place a target level the same distance away from their entry point. For example, if the trading range had an 80-pip distance from top to bottom, the target level would be set 80 pips away from the entry.
By employing this strategy, traders aim to capture the momentum and volatility that often accompanies the start of the London trading session, using the information from the Asian session as a basis for their trade entry and exit decisions.
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