Trading Sessions and Their Importance
Forex markets are being opened around the clock and while technically they are being opened only five days in a trading week, in reality, what happens over the weekend matters for the Monday’s opening as well. Therefore, we can safely say that this is 24/7 market and attention should be paid to each and every detail that can influence currency pairs quotations: technical and fundamental analysis, geopolitical factors, elections, natural cataclysms, etc.
Financial transactions are being cleared based on a specific system that the whole world is respecting. This is why there is a world’s reserve currency in place, namely the US dollar, and all transactions are being cleared in dollars in the end. For example, one person from Europe cannot buy a house in Japan and pay with Euros for it. The process is the following: the person’s bank will buy US dollars with the Euros equivalent to pay for the house, and with those US dollars the JPY’s needed for the transaction will be bought. The process of converting regional currencies into one another using the world’s reserve currency is called clearing and there are different clearing places and times in the world. By far, the most important financial center in the world is London, with the City clearing billions and billions of dollars in financial transactions each and every day. It is being followed by New York and then after Asian financial centers like Singapore, Hong Kong, Shanghai, etc. Based on this classification, there are three trading sessions that should be taking into account when trading financial markets.
Forex Trading Sessions and Their Characteristics
There are three trading sessions in each and every trading day and their order go as the sun goes: The Asian, London, and the New York session. It doesn’t mean though that this is the order of their importance. By far the London session is key, New York follows and the Asian session is the last one when it comes to the importance of the Forex market.
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The London Session
As mentioned earlier, this is the key trading session in a trading day and most of the times the close of the London session brings volatility down and ranges start to dominate markets. London session is characterized by a lot of important economic events to be released and the first thing traders do is to check what happened in the Asian session and prepare for the session ahead. Important economic events out of Eurozone and the United Kingdom make for the London session to be a volatile one and this is especially true when the New York session starts. For a few hours, the two trading sessions are overlapping and this makes for the most active trading times in a trading day. This is when moves are being made, fortunes are lost and made, and trends resume or start. For a trader’s point of view, all eyes should be on the London’s fix and on the bigger picture if the trades are being taken from a technical analysis point of view. Scalping is not recommended in the London session as prices are moving quite a lot. Therefore, swing trading or even investing for the long term should do the trick for profitable trading.
The New-York Session
This trading session starts with a bang as right after the opening, important economic releases out of the United States impact prices. The economic calendar in the United States is the busiest one in the world due to the key nature of the dollar, and therefore a lot of data is being released on a daily/weekly basis. After the New-York session, start and the London fix is behind, there is little to do but watch the US equity markets as these are clearly correlated with the Forex market. Consider just that the JPY pairs and the USD/JPY, in particular, are strongly correlated with the US markets as higher equities lead to lower JPY and the opposite is true as well. Except when FOMC Statement or FOMC minutes are due, look for the second half of the New York session to be a relatively calm one, providing equities are not making a big move. Scalping trading techniques can be used this time with an oscillator showing overbought and oversold levels to enter and exit the market.
The Asian Session
This session is a ranging one, something like ninety percent of the cases or maybe even more, especially during summer trading. Most currency pairs are settling in small triangles or flags, or in any case consolidation areas that are suitable for scalping on the low to very low time frames, like the five minutes and even the one-minute chart. Again, using an oscillator to find out overbought and oversold areas should do the trick for profitable trading, as well as trading based on bullish or bearish divergences on these lower time frames. The Asian session is usually being governed by algorithmic trading as before settling down for the day, London and New York traders are instructing robots to buy or sell on breaks. If breaks do not happen, then the price will simply stay in small ranges and it is not rare that the EUR/USD for example, is moving only a few tens of pips during this session. All in all, what is worth remembering from this article is that Forex trading goes around the clock with new trends starting most likely during the London or the New York session when the most important economic news is scheduled to be released. This doesn’t mean that the Asian session should be taken for granted. When Bank of Japan is holding its regular monetary policy market watchers are being very careful at the yen pairs and their implications for the overall Forex market.
Knowing when the market should move and, more importantly, what to expect from a trading session, should help a trader calibrating market expectations and the trading style accordingly.
Other educational materials
- What is Forex Trading?
- What is a Currency Pair?
- Majors and Crosses – How to Trade Them?
- Leverage and Margin Requirements
- Forex Trading Platforms – Metatrader 4 and 5
- What is a Margin Call?
Recommended further readings
- “The dynamics of international equity market expectations.” Brennan, Michael J., H. Henry Cao, Norman Strong, and Xinzhong Xu. Journal of Financial Economics 77, no. 2 (2005): 257-288.
- Utilizing artificial neural networks and genetic algorithms to build an algo-trading model for intra-day foreign exchange speculation. Mathematical and Computer Modelling Evans, C., Pappas, K., & Xhafa, F. (2013)., 58(5), 1249-1266.