What is the best time to trade forex

The Forex market – a buzzing 24-hour money playground, where you can dip in, whenever you feel like it to scoop up some of that free cash?

Right?

That’s how it’s often sold, by brokers who are vying for your custom.

And boy, does it sound tempting.

We get sucked into the idea that these markets move so fast, that if you trade with a 2:1 risk reward ratio, you can’t help but win … even if you get it wrong more than 50% of the time!

The truth is a little different.

The forex markets can be an almost bottomless sea of liquidity and volatility … a place where outcomes are incredibly difficult to predict.

Which is why it’s so important that you avoid the hype, and give certain key trading times a wide berth.

But there are quieter inlets, where it’s safe to dip in your toes … as long as you know where, when and how …

So how do you choose the right time to be in the Forex market … and ensure that your trading strategy matches with what the market is doing …

Why we’ve been trading Forex at the wrong times

Of course, it’s true that the forex markets are 24 hours … as one market goes to sleep, there are always others coming online. But these trading sessions are anything but equal.

Many forex ‘gurus’ will preach that we should be trading the fastest-moving, most volatile times in the forex markets – and I’ll admit that I’ve been attracted to these dynamic trading opportunities myself.

But it looks like adrenaline-fuelled forex traders have been getting it very wrong.

As you probably already know, there are three main forex sessions that overlap and follow one after the other: the Asian session, followed by the London session, and finally the US session.

Tokyo open: 0.00
Hong Kong open: 02.00am
Singapore open: 02.00am
Sydney close: 7.00am
Frankfurt open: 7.00am
London open: 8.00am
Tokyo close: 9.00am
Hong Kong close: 11.00am
Singapore close: 11.00am
New York open: 13.00pm
Chicago open: 14.00pm
Frankfurt close: 16.00pm
London close: 17.00pm
New York close: 22.00pm
Sydney open: 22.00pm
Chicago close: 23.00pm

And many Forex traders believe that they should be in the market at the busy times – when London comes online … when New Yorkers are hitting Wall St …

But take a look at this chart compiled by one of the largest forex brokers …

What this chart shows for GBPUSD is the percentage of traders winning, according to the time of day they are opening that trade.

There’s a marked difference in performance for traders entering positions at 9am London time (47% of whom were successful) and those entering at 8pm (with around 56% being successful).

To put this into context, compare it with this chart, showing the average hourly absolute pip move in GBP/USD over the past ten years …

What we can see is a correlation between tighter trading ranges, and trade profitability.

Those traders entering the quieter, off-peak trading sessions are significantly more profitable.

The difference isn’t as marked with all forex pairs, and those including the Japanese Yen tend to have more volatility during our (the UK’s) night, simply because that’s when those markets are open. Also the Asian session tends to have some clear bursts of volatility, when Sydney, Tokyo and Hong Kong come online (check out this post on the ups and downs of trading the Asian session).

So, how do we take advantage of this information?

We’d be foolish not to try to use this advantage that out-of-hours traders are having over others, but it’s important not to just dive into new trading hours without some thought.

Why are these low-volatility traders steeling a march on other sessions?

Is the difference in success down to the trading time, or the type of trading they do?

If we start out-of-hours trading with a trading strategy that’s been designed to catch fast-moving, high-volatility breakouts … we are likely to struggle to catch these moves.

But these sessions are better suited to range trading – catching the to and fro, where the moves are small, but more reliable.

These are where the forex markets are most reliable and we stand our best chance of predicting movements.

In my next post I look closely at the pros and cons of breakout vs range trading …

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Data source: FXCM Traits of Successful Traders (docs.fxcorporate.com/fxcm-traits-of-successful-traders-guide.pdf)

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