When I first started trading in the early 2000s, I was living on the East Coast of the United States. And I was getting up in the middle of the night to make my trades.
I did that for a very important reason — I was trading currencies and the forex market is primarily active during the very early morning hours on the East Coast.
That’s all there is to it.
If you’re on Eastern Time—and you can translate this into whatever time zone you live in—4 p.m. is what’s generally referred to as the market close. But it’s not really the end. The forex market is open 24 hours a day. It’s really only closed on Saturdays.
There is no real market close.
Nor is there a real market open.
Since most FX traders live and work in London, the FX market gets going around 2–3 a.m. EST and stays active until about 9 a.m. That time is generally referred to as a super active market time—and short-term traders love action.
But at about 9 a.m. ET, there’s a huge exodus of traders out of the London market (since it’s the end of their work day). Then, from about 10 a.m.–5 p.m. ET, everything is generally slow.
That’s not usually the way that people talk about the currency markets. Most people refer to the market by “session”—the Asian session, the London (euro) session, and the U.S. session.
Typically, the Asian session is viewed as slow, because a majority of the world’s traders are not yet awake.
The euro session is generally viewed as fast moving and active, because it’s morning in Frankfurt and London, when lots of currency traders are sitting down at their desks.
The U.S. session, which starts around 7 a.m. ET, is generally viewed as good, but not great. It doesn’t have the highest amount of activity… But there is crossover where London and U.S. traders are trading at the same time, and that’s generally viewed as pretty active.
What creates activity in a trading session?
The major factor is economic news. When we talk about trading and the news, we are generally talking about scheduled economic events that appear on an economic calendar. These include economic reports like employment reports, interest rate reports, consumer price indexes, gross domestic product (GDP), and trade balance reports.
There’s a whole line of thinking that says if you compare what is expected to come out in an economic release… with what actually comes out… some people might say you may have a trading strategy.
For instance, say you look at the Canadian employment report and see that on March 9, the forecast predicted 21,000 jobs would be created. But in actuality, only 15,000 jobs were created.
That’s a huge difference. And that massive difference between what was expected and what actually happened creates an extraordinary move for the Canadian dollar.
In reality, all these reports do is create activity. You can’t really predict which way it’s going to go. Oftentimes, an economic report will come out that seems positive for the currency, but the currency will still go down.
Why is that?
Because, while the economic report is a catalyst for movement, it’s not necessarily the reason for that movement. There are thousands of different reasons that traders make the trades they do.
So, if you are a short-term trader, look at the upcoming economic calendar. Look for interest rate statements, employment changes, and other reports like that.
Focus your attention on the days when big news is set to come out, because there could be a lot activity on those days. You might find that those are your favorite days to watch the market.
One that’s set in stone is the fact that every day at about 5 p.m. ET, the currency market rolls over. That’s when any trades you’re currently holding are carried over to the following day. That’s also when swap comes into play. Swap—or rollover—is the interest that you either earn or pay for holding onto a trade overnight. Wait, free money? Yep, and there’s more…