YOU NEED TO LOOK FOR RELEVANT MARKET DATA
Currency trading is continuously changing due to its complexity and it has been proved that it is very difficult to find a trading strategy that will work for years. This is why you need to focus on more reliable aspects in FX trading…things that are statistically proven and can basically turn your strategy from a losing one to a winning one. One of the most important aspects in trading that a lot of investors are overseeing is TIME.
WHY TIME IS IMPORTANT IN TRADING
The time of the day is very important for the profitability of your trades because the market conditions favor good trading results during certain hours of the day. Depending on the FX pair you trade, a certain time of the day can provide net superior trading results. And this is backed-up by logic evidence: a healthy trading environment is described, among others, by good liquidity and a proper volatility. You need liquidity when you trade because you will have higher chances to get the price you want, when you want it. You need volatility because it creates trading opportunities that attract more traders into the market. Moreover, technical analysis and price action usually work better in a volatile market. Please note that by volatile market I refer to a regular volatility and not to extreme volatility.
In order to find the best hours to trade the FX market you have to take a look at the opening hours of the main financial markets across the globe and, the most important, you have to look at the overlaps created. These specific hours bring together more market participants, thus more liquidity and the necessary volatility. You can see below the opening hours and the overlaps of the most important financials centers in the world.
As you can see, there are three important overlaps that you must consider if you are trading FX. By trading the relevant currency pairs for each overlap, there will be higher chances to improve your trading results. Why? Because during overlaps the markets are the most active and the price moves on the specific currency pairs are larger and easier to predict. The specific FX pair for an overlap is a pair that is composed of currencies from those two specific regions (eg. EUR/USD for the London – New York overlap).
DON’T GO FOR RUMOURS! TRADE ONLY BASED ON FACTS
If you still have doubts regarding the relevance of the hour in your trading, have a look at the below chart. This chart shows the average hourly volatility for the EURUSD cross for the Jan-Aug 2015 period. It is obvious how the volatility increases when two trading sessions are overlapping. As this chart reflects the EURUSD volatility, it is clearly shown that the best time to trade is during the London – New York overlap, between 12:00 and 16:00 GMT. During these four hours, the volatility ranges from 32 pips to 42 pips. There is also a good time to trade EURUSD during the Tokyo – London overlap. Another important information is that the hourly volatility constantly decreases after 16:00 GMT and this can be used by traders to improve their profitability.