Retail traders often make the mistake of not knowing the best time to trade in the Forex market. For this reason, they trade all the time.
However, markets don’t always move. In fact, statistics show that markets mostly range, then a trend.
Hence, knowing the best time to trade and when to sit on your hands helps. First, helps to protect the trading account from overexposure.
Second, it saves margin, as freer margin remains available. Finally, the trader avoids the emotional rollercoaster of always watching the markets when they don’t move.
Forex trading refers to the activity of buying and selling currency pairs. But retail traders engaged in it represent a small part of the overall trading volume.
For this reason, one way to survive in this market and to make a profit is to align the interests with the big players’ interests. Or, to know when the best time to trade is, by anticipating big players’ moves.
To do that, traders have a myriad of tools at their disposal. One comes from news trading, another from technical trading.
Moreover, understanding macroeconomics and geopolitics helps too. End knowing what robots do to the Forex market helps even more.
In this article, we’ll cover the most relevant aspects of helping traders spotting the best time to trade. Here are some of the topics:
- What is the best time for market planning
- Trading sessions and the importance of Forex timezone
- Forex calendar and how to make the most out of it
- Forex news to consider and why
- How to spot the main fixings
- Other markets that influence Forex
- Price and time strategies to use
- Why trading with pending orders matters
On top of that, we’ll explain things through the eyes of the Forex trader.
Tips and Tricks to Pick the Best Time to Trade
Entering and exiting a trade is subject to more than technical or fundamental analysis. A trader may want to buy a currency pair but still looks for the right timing.
The best time to trade Forex also depends on the moment. The moment during the trading day, week, or even month.
One thing is for sure. The markets won’t go anywhere.
When in a hurry to open a trade, that’s not a good sign. Think of it in the following terms: the market will always open next Monday.
What matters is for the trader to be there, as an active trader. And, the trading account to still have funds in it.
Not all trading days are the same. Not to mention that not all trading weeks resemble.
For instance, consider the NFP week. The price action on the major pairs (the ones that have the USD) shows mostly ranging conditions.
Which is not necessarily bad! Scalpers or range traders benefit from it by selling overbought and buying oversold.
The key here, as you may have noticed, is to identify when is the best time to trade ranges. Next, when to stop trading Forex with that strategy. Finally, when to enjoy the profits.
Winning starts with knowing the playing field. In this case, winning in Forex trading means knowing the best time to trade news. Also, to trade technical analysis concepts. But mostly, to know what can go wrong and what to do when things go wrong.
Because things DO go wrong, the aim is to minimize the damage by choosing the right strategy.
Planning the Forex Week Ahead
The weekend is the best time for planning. No open markets, no news, no economic data, no nothing to disturb the trader.
It all starts with the trading account. More precisely, with the funds in the trading account.
Ideally, there is no open position over the weekend. While the Forex market doesn’t move over the weekend, events do happen.
Elections, referendums, all kind of things may cause market gaps. Because of gaps, stop losses orders won’t help. Instead, the broker will close the trade when there’s a market, at the first available price.
Next, traders must decide the risk to take the following week. Also, the trading strategy matters here too.
Scalpers, swing traders, and investors have a different time horizon. For this reason, they may have different expectations regarding the best time to trade Forex.
Scalpers will strive for precision and accuracy. However, swing traders go for the right direction. Finally, investors choose the time, rather than price, for positioning.
Assuming traders know the risk, that’s it, the focus shifts on what to trade. What’s the potential trade ahead?
For this, traders use the economic calendar. Also, they check the technical requirements for a trade. Finally, they strive for the best execution possible, in line with the money management system.
Considering the Economic Calendar
One of the main reasons why Forex market moves comes from economic data. Or, economic news.
Fortunately, news comes out in a scheduled data. As such, traders know in advance what to look for. And, when.
It makes it easier to find out when is the best time to trade Forex. Currency trading may take place 24/5, but sometimes the market moves faster or slower than some other times.
The economic news comes out in three chunks:
- 1st tier data
- jobs data
- GDP – Gross Domestic Product
- Average hourly earnings
- Central banks interest rate decisions
- Central banks press conferences
- PMI’s – Purchasing Managers Index
- 2nd tier data
- housing data
- retail sales
- 3rd tier data
- confidence data
What you have above are only some examples. What matters, though, are the categories.
Because traders know the economic calendar in advance, they prepare accordingly. Naturally, 1st tier data creates larger market swings.
That’s where the focus sits. And that is the best time to trade for all type of traders:
- swing traders
However, the data offers different opportunities. Investors and swing traders usually wait for the economic release. And only after it, react.
Scalpers trade with the news. Usually, in the direction of it.
They try to get in for a very small distance. But, with a larger volume.
The economic news and economic calendar serve their purpose well for all traders. It is said that technical analysis gives the direction of a trade.
It may be true, but the reason why the market moves comes from fundamentals.
The EURUSD pair provides a great example. In the 2nd quarter of 2018, it dropped like a rock.
It fell from 1.25 to 1.15 area in an almost vertical move. No matter what bulls pulled out, it wasn’t enough to prop the pair.
The ECB (European Central Bank) tried propping up the pair too. Not good enough.
Suddenly, it bounced. Not only that it bounced, but for two weeks, it saw little or no pullbacks.
For bears, it made no sense. They used the underlying trend as just a correction.
Many established new Forex short positions on the pair. After all, what is Forex if not a speculation on a counter or trend move?
In a bearish trend, traders sell spikes. How about this spike?
Even the Federal Reserve meeting wasn’t enough to kill the pair rally. As the chart above shows, while the overall trend was bearish, the market needed a reason for another leg lower.
In other words, the technical analysis showed the way. Short.
But fundamental gave the reason. Or, the best time to trade the EURUSD pair.
Effectively the pair waited for the ECB decision for the next leg lower. That was the best timing to short the pair.
Again, best timing and the best time to trade are different things in Forex. Scalpers and swing traders may have loved the bounce for the last two weeks or so.
However, investors looked at it as just a bump in the short trend. Best time to trade a new position belonged to fundamentals. Timing belonged to technical analysis. But a long time ago, not now.
Trading Sessions and Their Importance in Forex Trading
Forex trading follows the sun. It starts in Asia on early Monday. Next, one by one, each country, region, financial center, open.
Three trading sessions, from right to left of the world map, dominate trading:
- With Tokyo, Shanghai, Hong Kong, Singapore, and Melbourne as representative financial centers, trading takes place in Asia. All big institutional players from around the world have a branch in Asia, in one of the centers mentioned above. They want to feel the market pulse, to be there, to act properly when needed.
- London, Frankfurt, and Paris dominate trading activity. With London the largest financial center in the world, this is the session where the market moves. Hence, if there’s a best time to trade sessions’ openings and closings, the London session provides it.
- North American
- New York holds center stage here. Moreover, when New York starts trading, there is a few hours window when London and New York sessions overlap. That’s when the volatility rises. And, opportunities appear too.
The problem with the trading sessions comes from the time zone. More precisely, where does the trader live?
This influences the performance of a Forex trading account very much. As a result, the trader must adapt the strategy.
When trading at the market, the best time to trade is the London. And, the New York one.
For this, one needs to live in Europe. What about the other traders in the world?
What about Asia, Australia, Canada, and other time zones? The answer comes from changing the trading strategy.
Namely, to change:
- how to enter the market
- the trading style
Pending Orders When Trading Forex
Some strategies require trading at the market. However, when that’s not possible due to the different time zones, traders adapt.
Desperate times need desperate measures. As such, traders change the way they enter the market. And, the way they exit.
Pending orders are the solution to the problem. After all, the best time to trade is when the market comes to the desired level.
It may be in an hour, two, a day, or not at all. That’s discipline, and that leads to the trading account growing.
Anyways, trading with pending orders is part of successful traders Forex habits. So, really, there’s not drawdown in it.
The use of pending orders refers to both entries and exits. For the entry, traders use:
- buy stop – buying takes place from higher levels
- buy limit – buying takes place from lower levels
- sell stop – the broker executes the selling at lower levels
- sell limit – selling takes place at higher levels
On top of these orders, some trading platforms offer other options. One is trailing the stop.
Trailing the stop at the closing price of previous candles is the most common way to trail it. This way, traders make sure they ride the trend as much as possible.
Changing the Trading Style
Another way to cope with different time zones and the best time to trade is to adapt. Hence, change everything.
Think of what works and how to be part of it. Scalping at the market, in this case, apparently won’t work. The timezone won’t allow.
Traders have two solutions to solve this problem:
- invest, not scalp or swing trade
- trade with robots
Investing When Trading Forex
Investing needs time. A trader that opens a position today and closing it tomorrow doesn’t invest. He/she speculates.
But, when the time doesn’t allow it, traders adapt. Investing needs:
- a longer time horizon
- a larger trading account
- the utmost discipline
- understanding fundamental factors that change the macro-picture
Instead, its benefits are:
- there’s no such thing as “best time to trade” as traders have all the time in the world to make a decision
- trading isn’t a time-consuming activity
- Forex suddenly makes sense, as the market reacts to macroeconomic forces
- traders end up riding large market moves/trends
Auto-Trading the Currency Market
All trading platforms today offer the possibility to auto-trade. More precisely, traders that can’t follow their strategy due to time zone limitations, have an option: code it.
Coding the strategy to a trading algorithm solves the best time to trade issue. The robot will:
- monitor the markets 24/5
- take a trade according to instructions, day and night
- never get tired
- will never lose focus
- will never get pray to fear or greed
While the best time to trade problem is solved, traders do intervene. Market conditions change, and the robot needs constant updates. Still, the time zone issue is resolved.
When the Forex Market Moves
To the surprise of many, Thursdays and Fridays are the most essential Forex trading days. Hence, the best time to trade (either opening or closing a trade).
Most crucial Forex news comes out on these two days. Moreover, the options market has is main expiries on Thursdays.
Even more, the main fixing times of the day, week and month come on Thursdays and Fridays. Hence, if there is a time of the week to watch, that’s the end of it.
That is especially true when the end of the month comes on a Friday. The main fixing (when both the London and the New York sessions are open) results in increased volatility.
Fixing times appear during the trading day, week, and month. They increase in importance every day and week, and when they appear at the end of the trading month, volatility skyrockets.
The most important fixing time is the 16:00 GMT. On Thursdays and Fridays, it matters more than on Mondays, Tuesdays, and Wednesdays.
Moreover, on the last Thursday and Friday of the month, the markets swing higher as the HFT (High-Frequency Industry) runs for the closer expiry.
Because both London and New York sessions are open, the main fixing is not the best time to trade, but the best time to avoid trading. Swings will quickly take out both bulls and bears.
Trading financial markets follow a path. Forex trading is no different.
The best time to trade depends on many outside factors. But also, the trader’s ability to analyze and trade, matter too.
Financial markets changed a lot in time. Products disappeared, new ones came to light.
Forex trading as we know it today wasn’t always possible. We take for granted online trading and all the speculating possibilities it brought with it.
But only in the 1970’s the world’s currencies started to free float against each other. After the United States dropped the Bretton Woods pledge, the fight for owning the stronger currency started.
Nowadays traders buy and sell with a simple mouse click. An Internet connection and a smartphone allow it on the go too.
Computers “spit” charts considering hundreds and hundreds of candlesticks on different timeframes. Moreover, they also buy and sell on behalf of human traders.
While many look for the best time to trade Forex as a strategy, maybe we live in the best time to trade since the Forex market exists.