The Forex is a 24 hours market, and it is traded 24/5 with off during the weekend. However, for professional traders, this is insignificant. It does not mean that they can trade whenever they wish to. There is a specific time of the day, during which the entry is more advantageous. Hence, to level up your trading skills, analysis is not the only critical factor. The time you enter a trade also matters quite a lot. For traders, movement in the market is critical. If there is no engagement in the market, the traders are least interested in getting into those trades. So let us discuss ‘what is the best time to trade Forex markets?’
The best time to trade
Although the Forex is a 24 hours market, the traders are interested in taking a trade at the time when there are significant market movements. And, these big movements are seen during the opening time of the market in different counties. When a market opens in a country, all the traders gear up, and the significant capital starts flowing in the market, which makes the prices move in large numbers. Same is the case during the market close. That is why there will be high liquidity and volatility during the market close as well. But, once 2-3 hours have passed from the opening of the market, it significantly slows down. There is hardly any movement in the market during the mid hours of the day. This time period is referred to as the ‘dead zone’. So, now we know that we need to trade during the market open and close. We also need to know the countries which have the capacity to cause significant movements in the market.
The major Forex market Centers are:
|Forex market Center||Opens (New York [EST])||Closes (New York [EST])|
|Frankfurt (Germany)||02:00 AM||10:00 AM|
|London (Great Britain)||03:00 AM||11:00 AM|
|New York (United States)||08:00 AM||04:00 PM|
|Sydney (Australia)||06:00 PM||02:00 AM|
|Tokyo (Japan)||07:00 PM||03:00 AM|
Above are the Forex market open and close timings. And, these are the timing we are interested in trading because that’s when there is a massive flow of money happening in the market.
Examining the market’s liquidity and volatility
Given is the chart of EUR/USD in the 15mins timeframe. We can see that just before the Frankfurt open, there were almost zero movements in the market. But when the Frankfurt market opened, some action started to appear. After an hour, the London market opened as well, and the pace increases a little more. But, after a couple of hours, the movement again slowed down. And, at 08:00 AM, the US market opened, and market blasted up north showing high liquidity in the market. Finally, Sydney and Tokyo opened at 06:00 PM and 07:00 PM respectively. Therefore, we can conclude that the best time to trade is during the US Open and the London Open as the liquidity is typically high during that time.
Why trade only during market open
We know that liquidity is the highest during the US and London Open. Let us dig a little more deeply into it and understand why to trade only during these times. Imagine you have no idea about the opening timings of the market in different countries. And, let’s say you took a trade on the 15mins timeframe at 09:00 PM New York (EST). This the time when the Tokyo market opened 2 hours ago. The big movers (US and London) are closed, and you are unaware of this. Usually, a 15mins trade is completed in about 1-2 hours. But, you see that it has been 3-4 hours and your trade still hasn’t performed yet. Now, you start to think that your analysis has gone wrong and you might even end up closing the trade due to self-doubt. However, later, the trade does perform according to your analysis. But, now it is of no use, as you are not in the trade. Hence, the time of your trade entrance is as crucial as your analysis.
Concept of ATR
The Average True Range (ATR) is an indicator used in technical analysis. It determines the number of pips a pair has moved over a specified period. We know that we need to enter the trade during the market open of the US and London, but, other factors to it are yet to be understood. The number of pips a pair has moved recently is also critical when someone is in a trade.
A complete trade example
Below is the chart of AUD/USD on the 4H timeframe. The market is in an uptrend, and we wish to enter a buy trade. Analysis of the trade is done, and the buy is taken at the point mentioned. The target is placed around 100 pips. When does the market move 100 pips? The market moves by 100 pips only during news or market open. Hence, the trade is taken at 09:00 AM after an hour, the US market is opened. Now, we plot the ATR indicator. This indicator indicates how long the trade will take to perform on an average. We see that the black dotted line is pointing to 0.0025, which means that each 4H candle is moving about 25 pips on an average. Since our target is 100 pips, we can expect the trade to take at least four 4H candles to move 100 pips. In other words, we must wait at least 16 hours for the trade to perform.
From the trade mentioned above, we infer that the usual technical analysis is insufficient to take a trade. This shows how critical it is to know when the best time to trade is. Imagine if the trade was taken during the dead hours. As the liquidity is very small during these hours, it could take a very long time for the trade to perform, and one could even close the trade thinking that their analysis is incorrect. Hence, trading during the market open, especially US & London, is the best time to take the trade.