Forex 3-session System: Why are the markets always open?

Author: Leon Marshall

Forex sessions – equal or more equal?

Traders on the foreign exchange market can enjoy a 24-hour open window, giving them an opportunity to trade at any time of the day. Knowing how time frames work and trading based on them is one thing, but combining them into groups and trading based on that new data is another.

As George Orwell said– “All animals are equal, but some animals are more equal than others”. Far-fetched as it may sound, this is equally true for Forex. There are times when price action is volatile, but in some times it is more volatile than others. Further to that end, currency pairs behave in different ways – where there is an actively trading group of speculators, there is price movement. There are three sessions that form the forex trading system and to see how they function and how to adopt them to improve your trading strategy, we will explore them in detail.

The 24-hour forex market…

Both individual and institutional traders can benefit from the flexible nature of forex. Being open on several time frames during the week, resulting in near non-stop trading times, the foreign exchanges market is one that comes with liquidity stamped on it. As much as humans can get into the groove and trade for a dozen hours on end, there is only so much we can do. It is physically impossible to be on the lookout 24/7, so opportunities will be missed. It is more than likely that there will be price changes during one’s absence period due to the inherent volatility of forex. Although there are many, many, many risk management and automation strategies that can make this work, if traders are unaware of the times when they are most vulnerable, they are exposed to potential losses.

Generally, the forex market is segmented into three sessions highest in volatility – the Asian (Tokyo), European (London), and North American (New York). During the trading times of these three regions, most bank and corporate transactions are performed, leaving their mark on the market’s volatility. Purely on a time frame level, there is also a larger number of traders active.

…and the trader.

As long as you know which period is more advantageous, defining the zenith of forex volatility, you can pick the session and the portions of it that are most fitting with your goals and strategy. In most cases, you will notice how currency pairs whose markets cross, such as the EUR/JPY and GBP/JPY, also move more to-and-fro the chart. Conversely, price action during later times of the London session and the New York session are generally not subject to sharp price jumps. Occurring events can, however, be a reason for different behavior and influence activity. Short-term traders normally look for entry points during hours of high activity, while long-term traders can wait it out until markets begin to settle before taking a position, though there are exclusions to both.

The average pip movement is another thing to look for, as it could provide a better overview of the market volatility during each session for all the major and minor currencies.

Hence, you have to determine when to enter, based on your trading approach. Session overlaps mark high volatility and considerable price action activity. After choosing a session, a more specific time frame can be picked n in accordance with the currency pair you would like to trade. As usual, tread with caution.