Though Forex is active all day and the retail trading functions are open five days a week, should you trade at any time without caring for the day of the week? The simple answer is No. In this article, we shall take a look at such topics as the best days to trade Forex, the importance of volatility, best months to trade Forex, and much more. Furthermore, we shall also dedicate a section to summertime slump, August boom, and how trading in a change in different times of the year.
So, what is the best time to trade Forex? Let us figure out how the trading week looks like. If you’ve got even the bare minimum trading experience, you may be aware of the Forex high volatile times. First up, there is very slow development from late Sunday to Monday. Then there is an up-trend which reaches its peak on Tuesday. There is again a dip in the volatility on Wednesday before it starts to swing up again the next day. Thursday has the highest score in terms of volatility, followed closely by Friday. Around 5:00 PM, GMT activities cease, and the market becomes dormant for the weekend. All in all, midweek is the pip range for currency exchange.
European Sessions: 3 AM to 12 noon EST
European sessions should not be ignored since a significant chunk of the daily world turnover occurs in the UK or the neighboring regions of France, Germany, and Denmark. The sheer number of market participants has made London the most volatile market for Forex. It also has the strategic time, which links with both American and Asian sessions.
To trade a European session, US traders may have to either get up early or stay up late since it runs from 3 AM to 12 noon EST. Though it is ideal for European traders, it is not too terrible for Asian traders who want to trade European sessions.
US Session: 8 AM to 5 PM EST
Another important session is the US session, which has a considerable turnover, not to mention that most world markers nowadays follow the trends that come out of Wall Street. Unless you have a job in the day, Forex trading can be done during this session. If Europeans want to get in on Forex activity for this session, they will need to forego their sleep.
Apart from these two market sessions, there are a couple of 'hot zones' to trade when market sessions are open at the same time, which is also called a session overlap. Such an overlap provides a time of peak liquidity, and it does happen twice:
1. The US-European Overlap (8:00 AM to noon EST)
Perhaps the most explosive time to buy and sell currencies is during the four-hour period when US traders are trading alongside traders from Europe. This is the time when the world’s major active trading centers cross – as the US session is opening and the European session is closing. Though small, it is quite a functioning window for rapid Forex. Such an overlap also coincides with the dissemination of critical economic numbers. This is why this period provides the greatest liquidity and movements in the market and makes for the best time for trading EUR/USD and GBP/USD pair.
2. The Asian-European Overlap (3:00 AM to 4:00 AM EST)
There is a 1-hour overlap between Asian and European financial markets at night. Similar to the US-European overlap, critical economic numbers are released at this time from both continents. That is why FX market volatility for the GBP/JPY is the highest in this period.
What Hours Should I Avoid?
The 10-hour stretch from 5:00 PM EST to 3:00 AM EST is the least active period to trade, which makes up the relatively quieter zone of Sidney and Tokyo sessions. Though it is the best time to trade NZD/USD, trading volumes for other currencies are relatively thin. At these hours, most European and US traders have gone to bed. If you are awake at such wee hours, perhaps it is an excellent time to be prepared for European session opening and Forex trades for next week.
Best Times to Trade
The best times to trade is when two sessions are overlapping. During these times, major news is coming out, which sparks volatility and directional movement.
On the other hand, the worst times to trade are on Sunday, the latter half of Friday, and holidays. More on this is mentioned in further sections. On Sunday, Forex activity is low, which doesn't make it the ideal time for the market. Monday is also considered a bad day for the market, at least the first half of it. Traders can forex morning trade system free download to make things simpler for them. By using trading software, traders can easily track volatility without having to search for it.
Midweek is the ideal time for Forex as trading quickens and market volatility heightens. Though on Wednesday there is a slight dip in volatility, it still is considered a good day. Thursday is another fantastic day for those who want to trade. It is also a good day to buy gold in a week.
Fridays can be a bit unpredictable because of popular currency overlapping. Generally speaking, the initial half has good Friday Forex conditions, which lead to high trading action. However, as the weekend approaches, the second half sees a significant drop in the latter half, which makes Friday quite unpredictable at times.
There is no Forex trading on Saturday, which makes it a good day to prepare and strategize for the next week while holding Forex positions over the weekend. If you’re wondering ‘Does oil trade on weekends’ – the answer is yes. However, similar to Forex, the trading volume is going to be extremely low.
When deciding in terms of months, it is better to divide the year into three clear periods of volatility. Two out of three of these periods are ideal for trading. The first five months and September through November are good periods for trading. June through August should usually be avoided reasons for which are given in the next section.
December is also a decent month for trading. However, there is a stark decrease in market activity during the latter half. The reasons for such a fluctuation can be attributed to the holidays. Holiday periods generally come with a slump in trading volumes. Activity picks up again after this holiday period ends.
Summertime Trading Slump
Summer month has the least returns for most European markets. Since various institutional traders in North America and Europe are on vacation, August is the worst month to trade. This is what leads to unpredictable and bigger price swings. Those who want to continue trading during the summer have to prepare for stages of ups and downs. Sooner or later, the slump subsides, which usually happens after the first Monday in September – immediately after Labor Day in the US.
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Autumn Boom, Christmas Freeze, and Spring Marathon
Even if you’ve experienced a forgettable summer, it is possible to improve your profits during the autumn and winter months, which are most important for yearly returns. The autumn boom is a reflection of the return of traders to the market. During this time, business activity also picks up in other industries.
By the end of December, trading activity slows down again and the weeks leading up to Christmas and shortly afterward are the slowest. The initial period of the New Year is an open season for trading. The first four to five months are excellent opportunities for traders to make some cash. Though it is not as enticing as the month of August, it still provides many brilliant opportunities. It is, without a doubt, the second-best period concerning Forex trading.
For those who are wondering ‘How many trading weeks in a year,' the answer is 52. But depending on volatility, not every week is ideal for trading. One thing to keep in mind when it comes to trading is that trading volume decrease during globally celebrated holidays and break, and there can be many unexpected swings in the market. This is true for major holidays like Easter and Christmas. It is crucial for you as a trader to mark these holidays in your calendar. This way, you can make hay during a period of high volatility in the market for currency trading and avoid the slumps by not trading during periods of low volatility.