This is one question that every trader has on his mind. Sorry, a correction, this is one question that is frequently asked by a beginner. It is because every expert or intermediate trader who have placed quite some trades and have been seriously trading for some time knows well that there is no definite answer for this question. No expert trader can advise the perfect time to trade and they cannot say which trades would assure the trader profit.
Some say that Forex trading hugely depends on one’s luck. I would like to disagree on this. The currency rates and the Forex market moves in a certain direction – upwards or downwards based on certain factors. These factors cannot be compared to an individual’s luck. The profits or loss what an individual makes is purely based on his trading decisions.
Therefore, what we will see here are the different factors that you should take into consideration before you make all your trading decisions.
Major factors that determine when you should trade
Do you trade your currency when it trends?
There are two major reasons why a currency can be traded 24 hours a day.
Around the world, the working timings of various currency exchanges for a country’s currency will be different
There is the need or requirement to be able to sell or purchase a currency
Now, seeing that the currency is available 24 hours for trading, one may be tempted to do the same. But the first and the major factor that determines the best time to trade is the individual himself. Giving in to the temptation and trading for long hours may leave him or her to burn out quickly, which leads to all the wrong trading decisions.
Another point to be noted is to set trading hours. This can be done by carefully analyzing the prices during the different period and comparing them against the same time frame; do not forget to keep in mind the effect the currency has on the various news releases too.
Trade during the market hours
As mentioned above, one can trade a currency 24 hours a day. But the best practice and also to be on the safe side, trading a currency while the local market is open is always the best idea. This is because, local markets provide domestic banks, fund managers, business and encourage investors to buy and sell the currencies. Also, the most transparent time of the trading cycle for a currency is during its market hours; providing the best liquidity.
Here are the four major markets and their market hours:
London: The market opens at 10:00 am GMT and closes at 07:00 pm GMT
New York: The market opens at 01:30 pm GMT and closes at 08:30 pm GMT (Banks & Currency markets)
Equity markets opens at 02:30 pm GMT and closes at 09:30 pm GMT
Sydney: The market opens at 11:00 pm GMT (previous day) and closes at 05:00 am GMT (same day)
Tokyo: The market opens at 00:00 am GMT (Midnight) and close at 06:00 am GMT
Trade the news
Every country publishes the economic news. These give the world an insight into the country’s economy:
Some of these will tell the current state of the country regarding its financial status
Some news confirms what the economy previously did when such news was published previously
While some help in the prediction of what is yet to come
The main reason why traders trade the news is that the economic news can increase the volatility of currencies in the markets for a short term.
Major news updates to look out for:
Retail sales figures
Employment and wages data Ex: Non-farm payrolls (NFP) and Average Hourly Earnings
Consumer price indexes (CPI)
Gross domestic product (GDP)
Interest rate announcements and Central Banks monetary policy statements
Consumer confidence indexes
Industrial Production Index
Manufacturing PMI and Services PMI
Durable Goods Orders
Trade when there is a market overlap
When two exchanges are open simultaneously, then that is a market overlap. Altogether there are 15 foreign exchanges, of which, the four – London, New York, Sydney and Tokyo are the largest and the most important ones. There are two notable market overlaps:
London and New York markets overlap between the times 01:30 pm GMT and 05:00 pm GMT.
Sydney and Tokyo markets overlap between the times 00:00 am GMT (midnight) and 05:00 am GMT
It is advisable to trade during market overlaps because that is when most traders are active; which in turn means that the market is more volatile, providing price movements.
Set a trading time for yourself
Trading continuously can make you feel exhausted and can ultimately lead towards poor trading decisions. The best way you can avoid this is by setting up a trading time. While choosing the optimal trading time, ask yourself the following three questions:
When is each of the market open?
When do the markets for the currency/currencies you trade overlap?
The major news updates and when are they made?
When it comes to determining the optimal time for trading, the best time is the one which you decide for yourself; only make sure that all the points discussed above are considered before you decide on one.
Always remember, no definite time or strategy in Forex trading will assure you good trades. The best time and plan is formulated with patience, determination and hard work; that too, after several right and wrong trades. Research and never quit trading – these form the key to success in Forex trading.