Currency trading is a 24/5 market that virtually follows the sun. From Monday to Friday, the markets never close, making it difficult to speculate on all trading sessions.
Moreover, different trading sessions have different particularities. Some are more volatile than others, for instance, so traders must adjust their strategies.
Before discussing the ways to trade different trading sessions, let’s focus first on defining the trading sessions and their particularities.
The Asian Session
When markets open on any Monday, the first financial centers that start trading are in Asia. Sydney and Tokyo are the first ones to begin the trading week, and the market typically is very slow.
Unless certain events happen over the weekend (elections, referendums, geopolitical events, natural disasters, etc.), the markets won’t gap at the opening. Speaking of gaps, the only possibility to experience one when trading the currency market is at Monday’s opening.
Some brokers try to get rid of the Sunday candle, and this is something we have to mention as it influences all trading strategy. While in the rest of the world is still Sunday, trading takes place in New Zealand for a couple of hours.
Many brokers got rid of that candle, as almost always the market doesn’t go anywhere. However, all trading strategies are influenced as indicators suddenly won’t use all the data, but only the data for the five regular trading days.
The Asian session is slow, less volatile, and traders typically position for the London and New York trading hours.
Traders focus more on trading small ranges uses oscillators and scalping in overbought and oversold levels. Swing trading and investing make sense only if one focuses on the bigger picture and has a different time horizon for the trades.
The London Session
Also called the European session, it is the most important one of them all. Despite conventional wisdom, London is the major financial center in the world and not New York.
Daily, the volume traded in London exceeds the one in New York, making the amounts cleared absolutely impressive.
It is during the London session when critical economic releases out of major economies come out. The United Kingdom and the Eurozone are home to one of the most significant economic blocks in the world, and the news coming out can quickly move the currency market.
The London session is perfect both for scalping and swing trading. Traders can easily reach risk-reward ratios of 1:2 or even more during the London session, especially in sessions when vital economic data comes out.
The North American Session
Also called the New-York session, it takes center stage especially when the Federal Reserve of the United States (the Fed) holds its regular meetings. During the early New York session, volatility reaches extreme points.
For a few hours, the London and the New York sessions overlap, making it a volatile trading environment. If there’s a moment during the trading day that’s important, this is the one, and the central fixing of the day comes during these trading hours.
Because trading is a game of probabilities, the idea is to have the best plan according to what the market is likely to do. For instance, during the Asian session, it is OK to expect a hundred pips moves, but the chances are that the market will range. Hence, traders use scalping techniques and trade larger volumes on smaller targets.
On the other hand, the London and New York sessions are so animated and volatile that the trading volume decreases. Traders use scaling techniques (open various positions at different levels so that they get a better average) and indicators that allow riding intraday trends (e.g., moving averages).