Last Updated: July 7, 2020
Beginners, who are new to forex trading in general often have one common question which is- “What is the best time to trade forex?”
The answer will always be different depending on the individual trader who’s asking the questions as the trading strategies and the tactics adopted by the trader plays a determinant role in their time-frames.
It should be noted by budding traders that hours of currency trading are very unique.
This is because the market week starts at 5 p.m. EST (Eastern Standard Time) on Sunday and ends at 5 p.m. on Friday.
Different traders target different time frames to trade currencies on the foreign exchange market all according to their research, strategies, and speculations.
Read on to find out more about the various factors that come into play while identifying the best time to trade forex so that you can identify the time frames that suits your trading style.
As a beginner, it can be rather difficult finding the sweet spot where you have the highest probability of making the most profit.
We’ve mentioned before how your trading style directly impacts the time-frame of your trading endeavors.
An example that will further explain that statement is of the day traders and long term traders as both of them use very different tactics and strategies.
Similarly, scalpers have to pay close attention to the time of their trades. If they trade at a time that is considered to be the least liquid, then they can end up wasting their money on the high transaction costs.
Furthermore, the traders who take part in multiple trades per day are also required to be careful with their timings.
On the other hand, some traders are said to be least bothered by trade time-frames. They are position traders and swing traders.
The reason for that is their trading time-frames are much wider than that of the day traders and scalpers so they are likely to be less affected by the timings of the day.
Before attempting to find out the best time to trade forex, beginners should look into the various time frames that exist in the forex market.
They are generally categorized under three major terms:
1. Long Term: The trading style that fits this category is position trading. It has a weekly trend time frame and its trigger time frame is daily.
2. Medium Term: The trading style that fits this category is swing trading and day trading.
Swing has a daily trend time frame and its trigger time frame is just over 4 hours.
3. Short Term: The trading style that fits this category is day trading as well as scalping.
Day trading has a 4 hour trend time frame and an hourly trigger time frame while scalping has an hourly trend time frame and a trigger time frame of just 15 minutes.
Not every hour of the day can be considered good for trading. The easiest way to find out the best time to trade forex is to see when the currency prices fluctuate the most.
Currency prices can be considered to be volatile when one or more than one of four markets are open for business.
The reason why we’re aiming for more than one market to be open for us is that currency prices usually get stuck in a very tight pip spread (roughly 30 pips) when a single market is active.
This changes and becomes more fluid when another market opens up simultaneously which allows for a much better pip spread (roughly 70 pips).
Furthermore, the currency pair you are trading in may also affect the time for your trades as Asian currencies observe a bigger turnover when Asian markets are open which is the same for western currencies.
Scalpers and day traders can take advantage of such scenarios as the Asian currencies such as JPY paired with western currencies like the USD tend to have lower spreads and higher price fluctuations.
Forex is a highly liquid which allows traders to observe all short-term time frames and extract important data from it to formulate better trading strategies.
A thorough analysis of the different time frames available to a trader is the key to successful trades.
Switching between multiple time frames during multiple trading sessions such as in European, American, or Asian time frames makes it possible for the trader to identify and exploit the useful gaps in between these sessions.
These “useful gaps” can be described as different and unique market conditions that traders identify and make note of to exploit in the future.
The term “exploit in the future” refers to the traders capitalizing on the various market characteristics using the data they have acquired which helps them determine the best time to trade forex.
Overlaps are considered to be the best time to trade by many forex traders. Overlaps occur during the trading times between markets that are open.
They provide traders with higher price ranges which opens up many opportunities for forex traders.
Three overlaps happen on the market every day.
They are the US/London overlap that takes place between 8 a.m to 12 p.m, Sydney/Tokyo overlap that happens between 2 a.m to 4 a.m, and the London/Tokyo overlap that occurs between 3 a.m to 4 a.m.
The US/London overlap is considered the most volatile of the three while the London/Tokyo overlap is considered to be the least volatile.
Keeping regular tabs on all relevant news portals is the unwritten rule in forex trading. Be sure to take advantage of that.
Identify which trading style is the best for you and stick with the strategies that are best suited for it as long, medium, and short term traders all have different rules to follow.
Using overlaps is also a great strategy to make the most profit with the help of the market’s volatility.
Dive in deep during the three overlap periods we talked about and determine which one is the best for you.
The bottom line is, there is no single answer to the question “What is the best time to trade forex”. It all depends on the strategies you are using as well as your trading style.