Friday, January 29, 2010

Best days and times to trade Forex


I did some research on the internet when the best days and times were to trade foreign exchange. Absolutely none of the articles I found were of any use at all! None of them covered the topic fully and most of them just gave you the times the Forex market was the most liquid, as in that is going to do you anything thing making a good trade. Mentioning what the trading times are when the markets open and close still doesn't let you know when usually the best time is to make a profitable trade, and above all I still missed one key word that I'll mention later in this post that actually answers this question.
I decided to write my own article on this topic with probably some eye popping explanations and actually cover the question about when the best days to trade the currency markets. This answer is complex, because there are several factors in play, but not difficult! To give you a first answer to this question it will be;
it all depends.
Forget about news trading or overlapping time zones, it all depends what currency pair you are trading, and what your objectives are (which is likely linked to what kind of trader you are) bottom line, that's it!, but that probably didn't tell you anything yet. Let's continue on shall we. Now that we have that covered, of course there is more to this, remember I said it was complex, but easy. The second answer to this question depends on where you are in the world. For me for example, I trade from the west coast of the United States, of course my exact times are going to be different then when you are not in my time zone, so you will need to convert my times to yours (which is -8 / -9 GMT depending on daylight savings and whether your country or territory observes it). To know 'your' Forex opening and closing time is very important, it will get you in a trading rhythm so to speak and makes you more aware of what's going on and how certain news stories affect your trading week cycle.
They say Forex is a 24h market, simply not true.
Here comes the third answer to this question; Forex is a 24 hour market with a brief close, for me that's 1pm PST (Pacific Time Zone)  (13:00) Friday until Sunday 2pm PST (14:00) when trading in New Zealand and Asian markets begin. Somehow in all these other 'explanation' websites covering Forex NEVER mention this suggesting to a new Forex trader that he or she can trade anytime possible no matter what and of course that makes it hard to interpret why trading times and days even matter. So Forex is NOT a 24h market in that sense. Now withing the opening and closing of those trading weeks there is something that I would like to call a 'winding up and winding down' period. Can you still make money during an unwind or wind down period, sure, but it makes it a lot more difficult, and we want to make it easy right? And I have been in more consistent profitable trades knowing what is covered in this post, no paid e-book nonsense like all the other guys want to get you into, just the simple truth and common sense. Now I'd like to get to the keyword that I've been missing from all the other websites that covered the 'best times to do Forex trading'. They kept mentioning liquidity but that is not an answer to this question. Just that some days are liquid (volatile) then others  doesn't make you more money, it only puts you in more risk of losing your money. No, the main reason is;
DIRECTION!!
Remember that word, especially when you are serious about finding out the best days and times to trade.  But when you've gotten this far, I'd assume you're more then serious! Because the answer and understanding the answer will only lead to making you more money, even better, consistently more money! This is how I and most other Forex websites (that are trying to sell you their super duper trading robot differ), most of them are saying that you should avoid times of news trading, now tell me, how can you avoid news trading?! That's just advice that just doesn't make any sense! Any time news can break and affect your trade. That's why the word above is so important! Even with all the volatility and liquidity and news trading in the markets, what's the number one you must hold on to when you want to make a profit... a sense of direction.
Earlier I spoke of the 'wind up or wind down', each and every trading week, which is the beginning or end of the week. The direction should be based on fundamental AND technical analysis. The technical on your trade should be easy to find with your favorite trading system, indicators and oscillators along, and the fundamentals are the (breaking) news and events around your trade. In the beginning of the trading week you will see the markets opening wobbly. One one side traders / speculators / investors snatching up a cheap price to lock in a price early on in the week, others selling currency to get rid of it and take profits or buying up cheap while it still is 'ahead of the o so uncertain' trading week. The problem with this is that the markets are low volume (now here comes liquidity into play), so you will have skid outs and spikes when you least expect it, in other words no direction, the market does want it wants to do. Then something interesting will happen. Now these experiences are based on trading the majors. When Wall Street opens, most of the time (emphasize on most)  a clear sense of direction will be present on any major. Like I said earlier, it all depends on what currency you are trading, if  you were in a EUR/GBP trade, you'd focus more on on a London trade time frame then a New York time frame. Now on Tuesday and Wednesday is where things really become interesting! The tone of the trading week has already been set and sometimes a major economic news report or event that will affect the currency markets will happen at the end of the trading week, either Thursday or Friday. Time and time again I have seen this happen during a 'normal' trading week. Of course you can never tell in any trading week which makes one of the key factors in trading, risky.
So here's a little wrap up, notice that these are based on PST timezone trading the MAJORS, also this is an AVERAGE and basically the final answer to this question, other then this there is simply concrete answer since we're talking unpredictable markets.
  • Sunday: Markets open; be cautious and observe the markets rather then jumping in one. The volatility this early on might show you direction of where the trading week will be heading, keep a close eye on Asian and early European markets.
  • Monday: Wall Street is still the center of business around the world whether you like it or not (some say London is because of their overlapping time zones). They set the tone for the world wide trading week and have a HUGE impact on the currency markets (one of the reasons why it's so important to understand the stock market as well as the Forex markets). A good opportunity to take a position in your Dollar against X trade.
  • Tuesday: In Forex trading I found this day to be the best day of the week. It has great direction and profit targets are clear! This is money making day! This day can even determine whether you're going to have a great trading week or a lousy one. In my opinion, this is a big trading day, all because the sense of direction!
  • Wednesday: This is also a great day to trade and pretty much a follow up to extend your trades from Tuesday or find new market opportunities.
  • Thursday: Take profits before the markets get to an an unwind tomorrow and starts to get wobbly again.
  • Friday: An unwind is happening making the markets shaky and less predictable again causing fake out and skid outs in your technical analysis.

I hope I shone some light on this topic and clarified some misconceptions on the best times to trade Forex!

Disclaimer:

All opinions expressed, trade recommendations/advice on this website are solely of John van der Munnik and are not affiliated with any investment firm or any other organization. You should not make an investment only based using this website VDM Trading for your trading needs without seeking help from your own financial advisor.