One of the goals of a trader is to find the optimal entry and exit time for his or her deals. Quite often finding the right moment is the key factor that might determine if the deal will be in or out-of-money. Markets are always changing and the way they function is quite important to understand.
Of course, there is no sure way to always know the right time to trade, because the markets can be quite unpredictable. Still, it is possible to study the markets and learn about the patterns and the ways they function in order to potentially find the appropriate trading time.
Follow the trading sessions
Financial markets function 24/5. When the trading stops on one side of the world, traders on the other side just start their day. This way, trading sessions follow each other and overlap, creating potential opportunities for traders.
Traditionally, traders follow the 3 trading sessions of peak activity – the European, Asian, and North American sessions. They are also referred to as London, Tokyo, and New York sessions according to the financial centers of each one of them.
The higher activity on the markets is observed when business is conducted in these three regions, as most banks and corporations conduct their daily business there. Let’s have a closer look at the trading sessions.
1. The Asian session.
It starts at 23:00 GMT and goes on until 8:00 GMT. The Asian session includes Japan, but also countries such as China, Australia, and New Zealand, so the timeframe of this market session extends beyond Tokyo hours. The Asian session may set the trend for other sessions that follow it, so it may be important to pay attention to the events that take place during those hours. As it is the Asian market that is involved, currency pairs with JPY for example might increase in volatility.
2. The European session.
One of the main features of it is that it overlaps with the Asian session in the morning and the American session in the evening. It starts at 7:00 GMT and lasts until 16:00 GMT. This timezone involves multiple major financial markets, including London, Frankfurt, Paris, and Moscow. The popular currency pairs within this time may include for example GBP and EUR, and usually the volatility increases.
3. The American session.
The New York trading session includes not just the USA, but also Brazil, Mexico, Canada. It lasts from 12:00 GMT (noon) until 20:00 GMT. The overlap of the American and European markets makes prices more dynamic in currency pairs for example EUR/USD due to the higher trading activity.
Understanding the timing of different trading sessions is key to planning a trading strategy. High volatility may contribute to today's trader’s results, but it also increases the risks. A trader has to pay attention to the market situation and adapt their actions accordingly.
Pay attention to important news
Following the trading sessions may not be enough, as it is important to understand the sources and the reasons for increasing or decreasing the volatility of assets. Traders may check the news and use the economic calendar to spot such occasions.
Such reasons may be regional and national economic factors, like the key rate and tax policies, inflation rate, non-farm payroll, etc. Major weather events, protests, or a new twitter message from the president of the United States – all of these things can have a strong influence on the market.
Seeing the bigger picture and being able to make connections between the events might help traders plan their deals in a more efficient way.
Conclusion
There is no right answer to the question “what is the best possible time to trade?” as it depends on many components. The reply to this question can be different according to one’s trading approach, the timeframe they trade, and the market they target. Following the market and checking the news may be a very useful habit for both novice and experienced traders.
