Many people find the forex market an attractive option mainly because it is open throughout the day. The allure of trading all through the day is so much that a lot of new traders try to do it, often with no success.
While it might feel like an awesome opportunity to trade all through the day you don’t have to trade all 24 hours to be successful. The key to successful forex trading is knowing when to trade and which pair of currencies to trade.
Unfortunately, most traders learn this the hard way. Luckily for you, this article will help you learn it the easy way.
One of the fundamental rules for success is that day traders should trade a forex pair when there is a lot of volume and plenty of action in the market. You should also choose a forex pair where either of the currency is likely to do well.
Some of the most preferred forex pairs are USD/GBP, USD/EUR, and USD/JPY. Before we get into the details of these pairings and the best time to trade, let’s take a quick look at the forex market in general.
As mentioned earlier, the forex market operates 24-hours a day. This is possible because of the geographical locations and time zone differences of these markets.
There are four major forex markets across the world. They are Sydney, Tokyo, London, and New York. All these markets operate at different times – as they are located at different time zones – making it possible for the global forex market to operate 24-hrs.
The Australian (Sydney 3 pm to 12 am EST) and Asian markets open at first (Tokyo 7 pm to 4 am EST). This is followed by the European market (London 3 am to 11 am EST) and lastly, the American market (New York 8 am to 5 pm).
As you can see one or the other market is always open and some of the opening times cross over with one or the other. For instance, the Sydney and Tokyo sessions cross over every day and so do the London and New York sessions.
These crossovers usually see high volumes and greater volatility giving traders many opportunities to make profitable bids. Usually, a slightly volatile market is better for the trade than a subdued one. The crossovers ensure that there is enough volatility to make a profitable bid.
When To Trade?
In theory, you can trade anytime you wish to as you can bid any time of the day. However, experienced traders would tell you to identify acceptable hours for day trading.
These are the hours that have enough volatility to generate profits and to cover the cost of the spread/commission, but not too unstable to cause any huge losses. So, the first step towards successful forex trading performance is identifying a particular 3 to 4-hour window that gives you enough volatility and currency movement to earn profits.
Read More: The Best Forex Trading Hours
The Impact On EUR/USD Volatility
Forex market is an over-the-counter market. It means that no centralised system or regulatory body is monitoring its activities round the clock. By now you must have understood that even though the forex market operates 24 hours a day, you need not trade throughout the day to make profits.
You might also have understood the need for identifying a few hours as your trading window. However, it is equally important that you choose your forex pair carefully. Although all forex markets trade in every currency, not all currencies are actively traded throughout the day. Typically, different forex pairs are actively traded at different times of the day.
Acceptable Times To Day Trade EUR/USD
If you are trading in EUR/USD pair, you need to identify a window that offers enough volatility. Normally, when Europe is open for business, currency pairs that involve the Euro or the GBP are more actively traded.
Likewise, when the US and Canada sessions are open, the currency pairs that involve the USD and CAD are more active. It means that the best time to trade in EUR/USD is when the European market or American market is open. The crossover when both the markets are open simultaneously is the perfect time to trade this pair.
This is because when both the markets are open, there is a higher probability of the pair being actively traded. You must check the time and zero in on a few hours where both the markets are open.
For instance, if you are in the EST zone, the ideal time for you to trade this pair would be between 08:00 and 10:00 hours, when both markets are open. Outside these times, the pip movements may not be large enough to justify your costs.
Volatility changes over time. However, generally, the most volatile hours do not change too much. Hence, most traders consider the 03:00 to 16:00 EST to be the most acceptable time to day trade, irrespective of whether daily volatility rises or falls.
Of course, you need to bear in mind that during certain months, daylight saving time comes into play and the clocks will be set forward or pushed back. As the dates of the clock going forward and back are different for different countries, you should consult the forex market hour tools to get the times correct.
Best Time To Trade The EUR/USD Pair
You already know that any time window between 03:00 to 16:00 EST is acceptable for day trading the EUR/USD. There would be enough movement to book profit and cover your spread. However, the most ideal time for day trade the EUR/USD is between 09:00 and 12:00 EST to ensure maximum profitability.
This is because both London and New York sessions are open during this three-hour window, generating larger volumes and tighter spreads.
It is important to stay away from the market as soon as it opens – allow some time for the dust to settle before you start trading. Likewise, the closing hours can also be a bit unpredictable. Thus, the window mentioned above makes sense as it gives you enough time to trade during the biggest moves of the day.
Forex market is highly liquid and volatile. It is unpredictable too. You should never venture into it without adequate preparations. Research and learn about the currency pairs you wish to trade and observe the market closely to learn more about it.
If you are unable to trade during the most active times in the USD/JPY pair, then perhaps you should look at trading other currency pairs. The USD/JPY, GBP/USD, or the AUD/JPY might offer great opportunities for you.
Come up with your strategy and plans and stick to it. More importantly, never invest anything you can ill afford to lose. Always cut your losses and use stop-loss when you make a wrong decision. Use your demo account to familiarise yourself and learn to trade before you start trading for real.
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