Market timing, an attempt to forecast the future forex market moves, can be very tiresome task for two reasons viz:
Moreover, there are dozens of currency pairs to track, which makes market timing literally impossible for traders to track every price movements.
So what is the best strategy that any traders can implement when it comes to taming this beast called forex market?
Traders can pick a particular currency pair and trade them specifically only during specific hours of decent volatility.
Volatility can be double edged swords in the sense that volatility offers liquidity but in the mean time it could be detrimental if a trader doesn't stay away in times of high volatility that usually follows at time of fundamental news releases like NFP and interest rate decisions.
Read more about news trading.
I trade EUR/USD only. So my entire discussion will be geared towards market timing for EUR/USD.
As one of the most traded currency pair EUR/USD offers high liquidity and high probable entry signals. Be that as it may, I don't trade EUR/USD on all hours of the day. I trade on specific hours on specific days.
The following break down of five different session should aid market timing conscious traders in making proper trading decision.
All time displayed here are in the U.S. Eastern Standard Time (EST).
The U.S. session commences with New York open at 8:00 A. M. until Wall Street closes at 5:00 P. M. EST.
This session is the second largest forex market place after European Session which claims more than 20 percent of the forex market activity.
In an average, EUR/USD pair move in 80 pips range.
European session begins with Frankfurt/Berlin open at 2:00 A.M. until London closes at 12:00 P.M. EST.
This market is the largest forex market place claiming more than 30 percent of the forex market activity. The market offers high liquidity and efficency during this period.
In an average, EUR/USD pair move in 100 pips range offering high probable trade opportunities for traders.
Asian Session begins with Tokyo market open at 7:00 P.M. until 4:00 A.M. EST.
Tokyo session tends to be thin from time to time.
This is specially true in case of EUR/USD pair as many fundamental news, events that move this pair, likely occur only in either the U.S. or European session.
Be that as it may be, one can range trade for quick 5, 10 pips in this session.
If you trade USD/JPY pair then this session might provide you with efficient market timing opportunities since Tokyo takes the largest market share followed by Hong Kong and Singapore. Major Japanese fundamental news are also released during this hours which adds more volatility and thus liquidity to USD/JPY pair.
The U.S. - European overlap session is the most wildest session offering traders plenty of efficient traders and liquidity. This session begins with New York open at 8:00 A.M. until London market closes at 12:00 P.M. EST.
Major fundamental news between European regions and the U.S. also occur during this overlap session which makes it most significant session to watch.
I dub this Asian-European session nap session because of thin volatility.
The overlap occurs between 2:00 A.M to 4:00 A.M EST. Nonetheless, beware that there are particular times when Bank of Japan (BoJ) notoriously attempts to manipulate this forex beast, typically to depreciate Yen for exporting reasons.
Also BoJ diversifies its forex reserve from time to time which causes great volatility during this session.
Since I trade EUR/USD I watch the U.S.-European overlap session more like a hawk.
I spend anywhere from 7-12 hours each day tracking the EUR/USD price movement. I find great trading opportunities to bank pips in these hours but there is a caveat though.
If you can't sacrifice the warmth and comfort of your bed waking up very early in the morning, it will be difficult to monitor this session. Literally, it took me more than a month to habituate my self to wake up fresh and ready to bank some pips during early morning.
Also as a part of market timing let me point out when I stay out from trading.
I don't take trade after 1:00 P.M. EST. The volatility is thin and I don't like gluing to a monitor without any action. I take a break.
You can take nap, make a trip to gym or whatever other things that will pleasure you -do it. But don't take trade after this hour until Tokyo opens at 19:00 Pm EST.
So how do you tame this wild beast named forex market? Write your review, including what sessions you love and/or hate to trade.