Watching the Clock: What are the Best Times of the Day for Forex Trading?

The forex marketplace is the most global asset market in the entire world. Operating in virtually every country, 24 hours per day, this incredibly global space for exchanges experiences more than $5 trillion worth of trading volume every single day.

There are many different strategies that you can use to become a successful forex trader. The best forex traders will not only use a diverse array of technical indicators, but they will also be well aware of the variables that can potentially affect the value of a given currency.

The exchange rate tied to any currency pair will experience many changes over the course of the day. Even stable currencies, such as the American Dollar (USD) and the Euro (EUR) can experience rate changes of ten percent or more in a 24-hour period. The natural fluctuations of the forex market create plenty of opportunities for returns, but it also increases the level of risk that is present.

One of the variables all forex traders will want to pay attention to is time. While the forex market is indeed a 24-hour market, most currencies have times of the day where they will tend to perform exceptionally well. In this article, we will discuss the best times of the day for trading various currencies. By understanding the role that time plays in this active and dynamic marketplace, you can exploit daily fluctuations and increase your ROI.

The Unique Dynamics of Forex Day Trading

As you will discover when trading any type of speculative asset, the strategies for day trading forex will rely on short-term indicators and quick technical analysis. Day trading is different than, say, position trader, which will involve holding positions for weeks, months, or even years on end. Day traders are not concerned about where a currency will be priced one year from now, they are simply concerned with where the currency will be at the end of the day.

Over the course of the day, almost all currency pairs will experience both up and down movements. Using oscillating indicators can help you capture multiple movements within a given 24-hour period. Day traders will also look for events such as the overlap of moving averages, potential breakouts in channel indicators (such as Bollinger Bands), and will need to pay close attention to the economic calendar. Only with a comprehensive view of the current forex market will you be able to determine whether a currency will swing up or down.

Following the Opening and Closing Bells

The forex market is strongly connected to each respective nation’s stock market. Other speculative markets, including the markets for bonds, cryptocurrencies, oil, and other commodities, will play a relevant role as well. As a result, most currencies will experience the greatest amounts of changes at the beginning and end of each trading day.

In the United States, the trading day (centered around New York) will begin at 8 a.m. Eastern Time and will close at 5 p.m. Eastern Time. Within the fifteen minutes surrounding these bells, the American Dollar will be exceptionally active. Tokyo, representative of the highly traded Japanese Yen, operates on an almost opposite schedule, opening at 7 p.m. and closing at 4 a.m. In response, many forex day traders will consistently switch between trading these two currencies.

The Australian Dollar (5 p.m. to 2 a.m.), the Great British Pound (3 a.m. to noon), and the Euro (roughly 2 a.m. to 11 a.m.) can all create trading opportunities over the course of the day as well. If you are hoping to day trade forex, be sure to always be aware of which corresponding markets are actually open. You should also be mindful of whether the markets are bearish or bullish—this will have a direct impact on the direction that the underlying currency moves.

Trading During Overlapping Sessions

Depending on the currencies you are planning on trading, trading during overlapping sessions can be especially productive. The two busiest currencies in the world, USD and GBP, are tied to New York and London’s trading schedules, respectively. From 8 a.m. to noon (Eastern Time), markets in both nations remain open. The Dollar, Pound, and Euro (which is just ahead of the Pound) will experience their highest levels of daily volatility. In fact, in response to this remarkably active overlap, about 70 percent (more than $3 trillion worth) of daily forex trading occurs during this time.

There are two other times of the day where the world’s largest currency markets overlap each other. When the Australian market and the Japanese market are both open (ideally between 2 a.m. and 4 a.m.), the AUD, JPY, and—indirectly—Euro will all experience movements. From 3 a.m. to 4 a.m., overlaps between the Japanese Yen and the British Pound will lead to major price changes. During these times, it is not unusual for currencies to experience pip changes of 70 or even greater.

Reacting to Fundamental Indicators

Price swings during the timeframes mentioned above can occur on a very predictable daily basis. However, over the course of an ordinary month, there will be several other fundamental events that can affect the values of all currencies involved. When developing a timeline for forex trading, be sure to also include all major economic announcements.

Economic data is usually announced at a date and time known well in advance. Consumer Price Index (CPI), industrial reports, GDP figures, central bank (such as the Federal Reserve) meetings, and employment data can all directly impact prices. Unsurprisingly, whenever this data comes out—which happens for every currency—markets will immediately respond. To know whether these reports will have a positive or negative impact on a currencies value, compare the actual data to the projections created by leading forex economists.

Conclusion - Best Time to Trade Forex

Within any given day, there will be plenty of opportunities for you to earn an income as a forex trader. Currency markets are most active during the currency’s opening and closing bells, during periods where markets are overlapping, and whenever important economic data is released. By being active during these specific times, you can maximize your potential as a currency trader.