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.

The 3-session system…

The Asian forex session with a major financial center of Tokyo is the first to see action and it consists of the period between midnight and 6 AM GMT. Countries like Australia, New Zealand, China, and Russia are included within this period, which is the reason for the presence of various frames during this session. Active hours fall between 11 PM and 8 AM GMT for all the aforementioned markets.

The European session is represented by London, and it is the second wave of activity throughout the day. Before the end of the Asian trading hours and the start of UK open times, other capital markets such as France and Germany also have their time to shine. Business hours, at least officially, start from 7:30 AM and last until 3:30 PM GMT. However, the volatility can prove to keep the markets open shortly after closing hours. The results is a window starting 30 minutes earlier and ending half an hour later than official hours.

Last but not least is the North American forex session, led by New York. By the time the NA session boots up, the Asian markets lay asleep and the EU traders are only halfway there. As to be expected, the NA session is predominantly occupied by the US, followed by Canada and countries in South America as well as Mexico. From all the cities in the region, understandably, New York is at the top of the game of volatility and participation. Trading hours start at 12 PM GMT and end at 8 PM GMT, with liquidity transitioning into a more relaxed state.

…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.