How to determine the best time to trade currencies
The best time to trade the market is when you have a moving market. That may sound obvious to many, but there are a lot of traders that would ask the question, “How do you know when the market is moving”?
First of all let’s talk about how to determine when the market is moving. One of the biggest ways to determine when the market is moving is to watch the market around the time that major news will be released. This does not mean that you would trade the news per se, but we suggest to trade around the time that the news may be released because the market does seem to have big moves at those times.
Another time to determine when the market might be moving is when there are two or more major markets open at the same time. For example the Asian, New Zealand, and Australian markets all open around the same time and this is usually referred to as the Asian session. Many times the market will have good moves at this time and especially if one of these countries has some big news is that it’s announcing.
Another time when the market will move is when the European session opens. You will also find it this time it is overlapping the Asian session. So once again there are several markets open at the same time. And finally when the US session opens which overlaps with the European session you many times find happening at that time as well.
You can refer to the chart below and see when the different trading markets are open and when they are overlapping.
You can find this chart in Forex Factory under the tab …Market … at the top of the page. Then you would scroll down the page until you come to the graph that we’ve shown below. Notice that when it is green it indicates which markets are open at that time. There is a vertical line that actually shows you what time of day you’re in when you’re looking at the graph. So it is an active chart the keep you current and see the different times at each of the different markets whenever you look at the chart.
There is no set time that any given currency pair may move. Any currency pair may have a move at any given time which generally is caused by some type of news announcement or political action that may be taking place in that particular country. So the following are just guidelines as to when certain currency pairs would most likely be moving.
We’ve talked about a general awareness of when the market might be most active. Now let’s talk about which currency pairs might be the best candidates to trade during the different market sessions.
When the Sydney and Tokyo markets are open, the pairs that many times will be most active would be anything that has the Australian dollar as part of the pair, New Zealand kiwi part of the pair, and the Japanese yen
When the London session is open you might see the euro or the pound pairs showing the greatest amount of volatility.
In the New York session or US session is open and you might find that the US dollar and the Canadian dollar may be most active.
We talked about the market moving around news times, when two or more major markets are open at the same time, and which currency pairs might be moving at those specific times.
You should also take note that when you see an individual currency pair moving you need to check both sides of the pair for secrets that may be causing the move. For example, if you see the AUD/JPY moving, you’d want to check the Australian dollar and the Japanese yen to see which side of the pair is causing the move. Once you determine whether it’s the Australian dollar or the Japanese yen that is moving, then check the other pairs that have that currency as part of the pair. So if the Japanese yen is moving check all the pairs that have the Japanese yen in them and you will most likely find other currency pairs are moving to provide you more opportunities for greater profits.
Not only have we talked about what is the best time, but we’ve also touched on which currency pairs you may want to be trading during those times.
We feel that to be a more profitable trader you should learn to trade indicators rather than trading one or two currency pairs only. We have found that if you only trade one or two currency pairs and they are not moving at the time you are trading you are more likely to start forcing trades and taking trades that are less likely to be profitable. So once you learn how to trade indicators than you can trade the currency pairs are moving during the highest probability times that the market will give you some good trades.
What’s the best time to trade currencies? The real answer is that there are many good times to trade in any 24 hour period of time.
Favorite currency pairs to trade
We are generally looking at 25 to 28 currency pairs. Depending on the time of day, we generally tend to focus on the pairs that are most likely to be active during that time period. But there are about 15 to 16 pairs that we would lean towards more than others.
Why would we lean towards one currency pair over another? The bottom line is that we tend to favor the currency pairs that have the greatest movement during any given trading day.
Let’s refer to the following illustration:
We call this a Currency Pairs Volatility chart. This is created on a weekly basis.
You will notice that the currency pairs are color-coded red, green, blue, and gray. The red color marks the pairs that have the highest volatility throughout the week and the gray color marks the pairs having the lowest volatility on average during the week.
Let’s take the GBP/NZD for example: on average it shows that it moves about 360 pips a day for the week. So if we had a choice to choose between the GDP/AUD pair which is in the red zone or the AUD/USD which is in the blue zone we would choose the GDP/AUD because it will move more and potentially give us more pips in the same time period as the AUD/USD pair.
If you are able to take 25% of the actual move a currency pair made during the day you may considerably more by trading the GDP/AUD than trading the AUD/USD.
The AUD/USD would give you about 22 pips a day where the GDP/AUD would give you around 64 pips a day. So keep this in mind as far as making more pips by putting the same amount of effort throughout the time you have available to trade.
We know other traders that choose only to trade pairs that have the US dollar as part of the pair. While other traders like to trade the currency pairs associated with the country that they live in.
Whatever method you used to choose the currency pairs you will trade, we would suggest that you have between 8 and 12 pairs to choose from. This way there will usually be something that is moving so you are not forcing trades.
Our trading strategy
As an introduction to the way we trade, we have a trading strategy that we would like to share with you. In a short period of time you’ll be able to see how to find high probability entries on the currency pairs that you choose to trade.
As part of the strategy, we share with you a concept or technique that will give you one year of experience in 30 days. That’s a lot of experience in a short period of time
You can use this technique on any strategy that you are wanting to test. Once you understand how to use this technique, you will quickly become a better trader.
Take a look at the following snapshots of trade setups in this trading strategy. You will see how easy it can be to follow a few simple rules and be able to know when to enter and exit trades in such a short period of time.
What you’ll be looking for in the following illustrations is a set up signals on a larger time frames then taking your entries on smaller time frames. You are finding the direction of the trend on a larger time frame then timing your entry on a smaller time frame always trading in the direction of the larger time frame.
Why should you care about the news and currency forecasts? Because we need to remember that the forex markets are driven firstly by the fundamentals. The fundamentals are the news, and news drives the market sentiment. Sentiment is a measure of how the market perceives its exuberance, or distain for what is going on economically and politically. The market is the buyers and sellers, along with the banks and institutions exchanging value for value. This all drives the price action that we see on our charts. At the very least, a trader should take advantage of the headlines to keep themselves apprised of at least a rudimentary understanding of where the markets are going. Because the news (fundamentals) affects our daily trading.
We have our own Forecasting team for our members to take advantage of if you are interested in joining the group. You can take advantage of that each week and trade alongside us as we share what we are seeing in the markets.
We look forward to connecting with other traders and strengthening our growing network. Hope to see you in our Trading room, starting out with our foundation strategy or following us in the weekly forecast membership.