One of the keys to success in trading is understanding when you should trade and when you should stay on the sidelines. This alone can make a huge difference to your trading results.
The best time to trade forex will depend on your trading style, lifestyle and personality. Traders who look for trending movements should usually trade during periods of high volume in the market. Traders who prefer to trade consolidations can trade during periods of lower volume.
Let's look at the characteristics of trading timing and how they can affect different traders. I will also discuss how your lifestyle and personality determine the best time to trade.
Trading sessions and trading styles
Basically you have three different types of trading session:
- Asian session.
- London session.
- New York session.
The Forex market operates 24 hours a day. From Asia to London, from London to New York and from New York back to the Asian session.
The first thing you need to understand about the best time to trade is when the markets around the world are open. In some markets the trading volume is higher and in others it is lower. This is because some countries are larger financial centers and have large trade volumes passing through them.
If you look at the chart above, the periods of highest volume are when trading occurs in London and New York. So if you are looking for big moves, you should trade during the London and New York sessions. If you trade during the Sydney and Tokyo sessions, you will find it difficult to make money with a strategy that requires large movements to make a profit.
However, if you are trading a mean reversion strategy or a low volatility strategy, then the Sydney and Tokyo sessions tend to be the best times to trade. Trading in London and New York will tear you to pieces.
Some currency pairs are more impacted by forex trading sessions than others. For example, EUR/USD and GBP/USD will see increased activity as New York gains momentum and London is still fully active.
Typically, a currency pair will have more liquidity when at least one of its markets is open – USD/JPY will be most volatile during the Asian or American session, but less so during the European session. EUR/JPY will be more active early in the European session, while EUR/USD will not be as active during the Asian session.
How does your lifestyle influence when you should trade?
Consider all aspects of your lifestyle.
Many tips you find on the internet will tell you that the best time to trade Forex is during the London and New York sessions. And that's good advice. But what if you are unable to trade during this time? What if you are working, sleeping, or doing other important things during this time?
You may only be able to trade certain time frames, such as the London open or New York close.
Also, look at how your current obligations may affect your ability to trade. Do you have to work for a certain period of time?
If you work and trade at the same time, you will be ineffective in both. Therefore, it is better to focus on one thing. Trading on a smartphone is truly difficult, no matter how much you might think it is possible.
So you'll have to make a decision. Either move to a more favorable time zone or change your lifestyle. Or work with what you have. If your trading strategy doesn't fit your lifestyle, it will take you much longer to achieve success.
How does your personality influence the best times to trade?
Finally, your personality plays a huge role in determining which trading strategy is right for you, and therefore when you should trade.
Are you more of a night owl or a morning person? Or perhaps you are most effective during the daytime? All this is important to take into account.
You should try to trade at times that correspond to your most productive waking hours. Of course, this is not always possible, but it will improve your results.
Trading when you're tired is a recipe for disaster. So even if you are awake for a certain amount of time, it does not mean that now is the best time to trade.
I used to think that everyone was most productive in the morning. As it turns out, this is not true. We all have our own internal rhythms that are important to consider.
Trading style and timeframe
Another important question to ask yourself is: is swing trading or day trading better for you? Or perhaps even position trading or scalping?
I encourage you to start out as a position or swing trader before trying to jump straight into day trading.
Day trading requires intense concentration, and most people cannot sit in front of a monitor for a couple of hours at a time. Either due to lack of attention or due to external circumstances. On top of this, some traders get too caught up in the emotions that come with day trading.
However, if you are very passionate about day trading, this is something you should focus on. But keep in mind that day trading does go against the grain of how most of our brains are wired and usually requires a lot more knowledge and experience.
On the other hand, swing trading allows for more flexible planning, is easier to backtest, and also allows for a larger margin of error. Five or ten pips don't make as much difference compared to day trading.
Some traders are better at recognizing trending trades. Others are better at trading against the trend.
You should also consider what type of trading you are looking for when choosing the time to trade.
Trend trades usually occur during periods of high volume. If you try to enter periods of low volume, there usually won't be enough momentum in the market to create a trend.
Counter-trend trades can usually be found during periods of lower volume. Ideally, you should try to enter these trades shortly before volume in the market begins to rise. This way, you can potentially get a reasonable stop loss and catch the dynamics of a trending market.
Let's sum it up
There is no universal recipe for successful trading. If someone tells you that a certain time is the best time to trade forex, then it is usually the best time to trade for them only.
There is no better time to trade. There is only the best time for trading for you.
Luckily, the forex market is open 24 hours a day, 5 days a week. This means you have many opportunities to design your trading strategy and timings to suit you and your lifestyle perfectly. It will take some experimentation and time to figure this out. The main thing is don't give up!
