How to grow your trading account: Trading sessions and their importance

Hi hivers welcome to another edition of my series on how to grow your trading account. In my last post, I said you can trade forex 24 hours and five days a week but does it mean you should trade for the whole twenty four hours? Obviously not.

In this post, I will be writing about trading sessions and some terminologies used in forex trading.

What is a trading session?

According to investpedia a trading session is a time period that matches with the primary daytime trading hour for a given locale. It’s more like normal work hours for normal people. It most times correspond to 8am to 4pm in the said part of the world.
There are four trading sessions although some authorities say three. For the purpose of this post, I will be alternating between three and four sessions.

• The Sydney session
• The Tokyo/Asian session
• The London session
• The New York session.

The Sydney session opens at 22:00 and closes at 06:00 GMT. The tokyo session opens at 00:00 and closes at 08:00 GMT. The London session opens at 08:00 and closes at 16:00 GMT. The new York session opens at 13:00 and closes at 22:00 GMT.
You will notice that there are some periods when two sessions overlap. For example 13:00 to 16:00 GMT is the period of time where the New York session and the London session overlap. The periods in which there is an overlap tend to be the busiest time in the market. This implies that there is more volatility, more liquidity and anything you can think of.

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As a trader, you want to go into the market, do your transactions make some profit and get out. I have always said it that, the market can be likened to a war zone, nobody wants to be in a war zone for too long whether you are winning the war or not.
A knowledge of trading session helps you to program yourself and your trading to a time that is most effective. You don’t what to be in the market when the market is just still.
According to baby pips, the average pip movement for the EUR/USD for the Tokyo, London and new York session was 76, 114 and 96 respectively with the London session having the highest average movement.
Another look at the average pip movement for the USD/JPY for the three sessions had an average movement of 51, 66 and 59 with the London session having the highest movement.

Does this mean that trading during the London session is the best time to trade?

I am sure with the statistics, you would have concluded that London session is the best time to trade and yes you are correct. The reason why London time is definitely the best time to trade is because during the hours of 10:00am to 3:00pm GMT, two active sessions overlap.
Another reason is that traders in the two of the largest financial centres in the world are actively trading. Below is a picture showing average number of pips in relationship to trading sessions.

Source

Another reason is that major news(like ECB meetings hold around the period of overlap in my experience) are being released at the beginning New York session, so expect a lot of battles.

Is there any day of the week that is best to trade?

Source
This picture above shows the average movement in the market for each day for various pairs. It is evident that it is best to trade between Tuesdays and Thursdays.
The reason is simple,on Monday the market is just a opened and there are a lot of speculations so people wait to see the market trace its step before going into the market.
Also the movement of the market reduces as the weekend comes nearer because traders close their trade to go spend time with their family, some go to watch football(this mainly happens in London).
Personally, i have discovered discovered that most of my trade gets to either the take profit around Tuesday and Wednesday.
So yes, there is a best time of the week to trade.

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On a final note, trading requires more of discovering what time is best for you to trade and you will discover this when demo trading and when executing your strategy. Don't rush into the market place without preparing. Preparing means adequate knowledge, practice and adherence toto strategy.

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In my next post, I will be writing about terms used in Forex trading.

References

1. Investopedia
2. Babypips

Thank you for reading my blog.