Four Major Forex Trading Sessions and the Best Trading Time

The perpetual Forex market operation has prompted many traders to view Forex trading as an alternative income source. Forex uniquely operates around the clock, diligently remaining open 24/5, in contrast to the sharp closure of stock and commodity markets at 8 p.m.

This leads to the question: why is Forex a 24-hour market? This intriguing concept and its continuous function are explained in detail further ahead. Then you must be wondering if I need to sit in front of my computer 24 hours a day to watch when to trade. No, you don't need to. There are four main trading sessions for Forex trading. You just need to choose the right trading hours according to your schedule and trading preferences.

Through the guidance of WikiFX commentators, we aim to build your understanding of the Forex trading market from novice to proficient level. This comprehensive comprehension of Forex trading paves the path to evolve from a beginner to an expert trader.

As we have mentioned earlier, these four places are the largest trading centers, accounting for nearly 75% of the daily foreign exchange trading volume.

Next, we'll discuss their respective characteristics and the trading strategies suitable for traders during these sessions.

Below is a table summarizing the four Forex trading hours, including local time, Eastern time and GMT(Summer Time).

At certain times, the overlap of two trading sessions can increase trading activity and market volatility. The two major overlap periods are:

• Tokyo-London (GMT 08:00 to 09:00): At this time, both markets are open.

• London-New York (GMT 12:00 to 17:00): Both markets are active, with high trading volume and significant price fluctuations.

These overlaps are important because they provide increased market liquidity due to a higher number of traders. High liquidity can reduce the likelihood of price declines, the potential for order fulfillment is higher, the spread within a currency pair is smaller, these are often good trading opportunities.

However, these two overlapping periods need to be distinguished.

During the Tokyo-London overlap, the Asian market usually does not fluctuate much and enters a stable state in the afternoon, while the European market is just starting, lack of liquidity may make traders feel the market is lackluster.

On the other hand, the overlap of London and New York trading sessions is the best trading period, traders from both major financial centers start to become active, market liquidity increases, especially when the US economic data is released, the market changes greatly.

With the detailed analysis of trading sessions as mentioned above, you must be eager to understand how to choose the trading session that best suits you or the best trading session. Let's first analyze a few key factors for selection:

• Market Activity: Different sessions have varying levels of market activity. Generally, the London and New York trading sessions are more active and provide more trading opportunities.

• Volatility: Market volatility also varies between trading sessions. If you are a trader who prefers high risk-high reward scenarios, you may opt for sessions with greater volatility. If you prefer a more stable environment, sessions with less volatility might be your choice.

• Trading Strategy: Your trading strategy will also dictate which session suits you best. Certain strategies may perform better during specific sessions.

• Personal Preference: Your personal lifestyle and schedule should also factor into your decision. For instance, if you are located in Asia, the Sydney and Tokyo sessions might be more convenient for you.

• Economic Data Releases: If you plan to trade a currency pair that involves a specific country's currency, you should keep an eye on when that country's economic data gets released, as it can affect the value of that currency.

We already have some understanding of basic selection criteria. Next, we will provide some widely recognized best and most avoidable timeframes for your reference.

The forex market operates 24/5, but our attention is limited, it's crucial to seize the prime time and complete transactions effectively. The following will analyze the optimum trading time in the forex market.

Overlap Time Sessions

This is because the overlay of the forex market is more active, and the overlap means that at this time there are quite a few traders, which will impact the market situation. We have already covered this part earlier, so it won't be reiterated here.

Mid-week Periods (Tuesday to Thursday)

This tends to be more active trading days of the week, suitable for trading. Traders should be aware that when the Asian and European trading sessions overlap, and when the European and American trading sessions overlap, market activity will increase, and price fluctuations become extremely unstable. The state of these markets changes rapidly, especially just as the overlaps begin, so careful trading is necessary.

Concurrently, at the start of the trading week (the beginning of the Asian trading session) and the end (the end of the New York trading session), the market trading volume is often very low, and careful trading should also be practiced.

After understanding the optimal trading time periods mentioned above, next, we definitely need to consider what periods are less suitable for trading, to avoid losing money.

The First and Last day of the Trading Week

Generally, the initial 24 hours of each trading week are perceived as slow with participants returning from a 48-hour break. During this period, participants are essentially determining their trading direction for the looming week. It is wise to avoid trading every Monday unless one has already secured a position in the weeks prior.

On the flip side, liquidity tends to slump on Friday afternoons in New York. With markets closed on Saturdays and Sundays, any unexpected news on Fridays might elevate trading risks.

Holidays

When important holidays approach, many individual investors and institutional ones reduce their trading activities. Some banks may also be closed on these days. Hence, trading during these times is usually subdued with poor liquidity, which makes it unfavorable.

For example: UK or US bank holidays. In the absence of these countries' participation, the market's trading volume and liquidity will be lower than average.

Major Events

Making market entries during significant events can be risky as it is hard to predict the direction of price movements. Rapid trading before having a deliberate strategy may result in agony. While major events can pose challenges and opportunities, individuals without substantial skills and experience will face significant risks.

For example: The outbreak of the COVID-19 caused extreme fluctuations in the exchange rate of Yen to USD (including all major global currencies), increasing uncertainties and trading risks.

Six months before the COVID-19, the Yen had depreciated, from 105.12 Yen per US dollar to 109.78 Yen per US dollar.

If you are a beginner, then the following content should not be missed. New traders should choose a trading session that best suits their trading strategy and personal preferences.

In general, the most active and therefore most profitable periods are the London and New York sessions. During these periods, market volatility and liquidity is higher, which can lead to more trading opportunities. However, these periods can also come with higher risk due to abrupt market fluctuations.

For those who prefer less volatile market conditions, the Sydney and Tokyo sessions, which are less active, might be a better option.

Regardless of which session you choose to trade in, one thing to note is that you must pay attention to the trading rhythm. Take advantage of profit opportunities when the market is favorable, and conserve your energy when the market is unfavorable. Never be in a rush to achieve results.

As mentioned earlier, apart from understanding the appropriate trading times, the release of important fiscal and financial information can affect forex fluctuations. So how do forex traders remain constantly sharp on the market? You can choose a platform with an economic calendar and latest forex news, such as our WikiFX APP, or visit our website at https://www.wikifx.com/en/

Firstly, the economic calendar can provide investors with early warnings of major economic events that are about to occur, such as central bank interest rate meetings, the release of important economic data, etc. These may trigger drastic fluctuations in the market, and investors can choose corresponding trading periods based on their risk tolerance.

Secondly, forex news can help investors to be aware of global economic dynamics and policy trends in a timely manner. There are many factors affecting currency exchange rate fluctuations, such as economic growth, interest rates, inflation, political events, etc. Paying attention to and understanding these news can help investors grasp market trends and make wiser trading decisions.

Let's review the key points mentioned in this article: the reasons for the 24-hour opening of the forex market, the four major forex trading sessions, the characteristics of each trading session, and the appropriate trading strategies to adopt. In addition, we also discussed overlapping trading sessions, the most suitable and the most avoidable trading periods, and of course, the trading periods suitable for beginners.

Generally speaking, we need to analyze specific situations, and trading at the right time depends on the expected results we want to achieve. Of course, forex trading carries a high degree of risk, and we can't generalize, universal conclusions still need to be supported by our own study and insight into the market. When reading this article, it is suggested that you also study the article on Best Forex Trading Strategies in 2023 (Top 8) simultaneously, so you can further understand how to observe forex market trends during specific periods and which specific strategies to choose.