Forex traders never sleep, or at least, it would appear that way, with markets open 24/7. With the aforementioned in mind, some may be wondering if there's another way to approach trading, or if there are simply "better" times to trade than others.
Within this article, we not only examine Forex hours and when the best times to trade are, but we will also examine the overall 'paradigm' behind trader's mindset of market-hours on the whole.
I Mean Really, Who Are You?
First and foremost, before we jump into a discussion of Forex hours, it's important to know what type of a trader you are...Doing so will help clarify the time frames you trade. Really, there are three types of traders out there: Forex day traders, swing traders and long-term holders. Have you decided this yet?
If you haven't taken a clear stance of what type of trader you are, it may be causing you to lost money...Here's why: Without knowing what timeframes you trade, without having made this decision in your mind, it may be causing emotional turmoil, unnecessary trading -- and even prompting you to trade at the wrong times.
Long-term (there are very few in Forex) will most likely not be concerned about market hours, as their positions generally attempt to transcend short-term volatility.
Swing won't be as concerned with short-term volatility, but for those who are attempting to hold for one, or more weeks, can perhaps use times when more than one market is open, for greater volatility entering, or exiting trades.
Day traders, should be most concerned about market hours. As we move through the next sections of the article, day traders will want to remember two things: Liquidity provides opportunity. Brokerages want to you to trade more. (I'll explain more on this in a moment.)
Hours of Operation
Personally, I think it's pretty cool that Forex markets are open 24/7, the perfect scenario for those who are trying outside of normal business hours, or live in a distant time zone. However, not all markets are open at the same time -- they do overlap though, The below graph shows when the four markets: London, New York, Sydney and Tokyo are open (on a 24 hour clock, based on Eastern Standard Time)
What you will notice in the above chart is there are three times when markets over lap...
3:00 AM to 4:00 AM - London and Tokyo overlap.
8:00 AM to 12:00 PM - London and New York are both open.
7:00 PM to 2:00 AM - Sydney and Tokyo trade together.
During times when more than one market is open, volume and volatility increase significantly, and are a great time for day traders to see action happen. However, when only market is open, trading can dry up significantly, especially late at night, via U.S. time.
There are two points to note here though:
1. While trading action can be slow when only one market is open, it does not mean that movement does not occur. Many brokerage firms will tell you that it is not a good idea to trade (for daytraders) during times when only one market is open. And, it's understandable too, since they make their money when you trade heavily. When only one market is open, there's a good chance you're going to trade less. Thus, remember that while Forex firms would prefer you only trade during hours where more than one market is open, you can still make money when only one market is trading.
2. When the New York markets is open, by itself, during the day, traders will generally see more action than when Sydney, or Tokyo are open by themselves. Usually, London can be fairly slow too, from 4:00 AM until about 7:00 AM, but can see an uptick in volume even before New York opens, as U.S. traders wake up and login, pre-stock market. Though the New York market is open by itself from noon to 7:00 PM, noon to 5:00 PM can see movement, as many U.S. stock, option and commodity markets are open too.
At the end of the day, Forex daytraders will likely want to be around mostly for hours when more than one market is open; however, only having one market open doesn't mean that currencies won't move -- especially in the case of New York hours.
Finally, by trading in currency pairs that are related to the markets open, there could be increased volatility, as opposed to the currency pairs that are not. However, we are a globally connected currency market and if one market makes a bold move, do not, for one second think other markets will not move too.
Because of the rise in Forex popularity, every market is connected like water...When a stone is cast in one market, the ripples will move through all markets.
Mark Whistler is the founder of WallStreetRockStar.com and is the author of multiple books on trading.
Mark's newest book, The Swing Trader's Bible (John Wiley & Sons, Inc.) - co-authored with CNBC/Fox News regular guest Matt McCall - will be on shelves in late summer, 2008.
In addition, Mark also writes regularly for TraderDaily.com and Investopedia.com.
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