One of the main concerns traders may have is finding the optimal entry and exit time for their deals. Quite often, finding the best time to trade is the key factor that might determine the outcome of a CFD deal. Markets are constantly changing and the way they function is quite important to understand.
Of course, there are more than one answers to the question “What is the best time to trade?”, as markets can be quite unpredictable. Still, it is possible to study the markets and learn about the patterns and the ways they function in order to potentially find the appropriate trading time based on your trading approach.
Follow the trading sessions
Financial markets function 24/5. When the trading activity stops on one side of the world, traders on the other side just start their day. This way, trading sessions follow each other and overlap, creating potential opportunities.
Traditionally, traders follow the 3 trading sessions of peak activity – the European, Asian and North American sessions. They are also referred to as London, Tokyo and New York sessions according to the financial centers of each one of them.
Higher activity on the markets is observed when business is conducted in these three regions, as most banks and corporations work there. Let’s take a closer look at the trading sessions to understand how it works in order to make more informed decisions based on your trading approach.
1. The Asian session
It starts at 23:00 GMT and goes on until 8:00 GMT. The Asian session includes Japan and countries such as China, Australia and New Zealand, so the timeframe of this market session extends beyond Tokyo hours.
The Asian session may set the trend for other sessions that follow it, so the events that take place during those hours might be important. As it is the Asian market that is involved, currency pairs with JPY, for example, might increase in volatility.
2. The European session
One of the main features about it, is that it overlaps with the Asian session in the morning and the American session in the evening. It starts at 7:00 GMT and lasts until 16:00 GMT. This timezone involves multiple major financial markets, including London, Frankfurt, Paris and Moscow. Some examples of popular currency pairs within this time may be, among others, the GBP and EUR.
3. The American session
The New York trading session includes not just the USA, but also Brazil, Mexico, Canada. It lasts from 12:00 GMT (noon) until 20:00 GMT. The overlap of the American and European markets makes prices more dynamic in currency pairs due to higher trading activity.
Understanding the timing of different trading sessions may be crucial for planning a trading approach. High volatility may contribute to day trader’s results, but it also increases the risks. So traders might want to keep an eye out on the market conditions and adapt their actions accordingly.
Pay attention to important news
Following the trading sessions may not be enough, as it is important to understand the sources and the reasons for increasing or decreasing volatility of assets. Traders may check the news and use the economic calendar to spot such occasions.
Asset performance may be affected by regional and national economic factors, like the key rate and tax policies, inflation rate, non-farm payroll etc. Major weather events, protests or a new Twitter message from the President of the United States – all of these things can have a strong influence on the market.
Seeing the bigger picture and being able to make connections between the events might help traders plan their deals in a more efficient way.
What may be considered the best time to trade Forex?
Some assets for trading may experience higher trading activity and more volatility at certain periods during the day. This is often the case with the Forex market, especially when it comes to the most popular currency pairs, like for example, EUR/USD. So some experienced traders might focus their attention on these periods — also called market overlaps — to potentially improve their outcomes.
It is generally considered that the European and the American market sessions overlap from 13:00 to 17:00 GMT has the biggest effect on the Forex market. This is when there is more trading activity, leading to increased trading volume and potential trading opportunities on the Forex market.
However, keep in mind that a rise in trading activity may also lead to increased volatility. It’s important to consider the risks involved and apply appropriate risk-management tools to manage different outcomes when trading CFDs on currency pairs.
What may be considered the best time to trade stocks?
When it comes to stocks, some expert point to the opening hours as the time of higher volatility. This is when asset prices can increase or drop significantly to reflect the market news and events that happened since the market closed the previous day.
While higher volatility might attract experienced traders, some novice traders may feel overwhelmed and listen to their emotions instead of logic. So make sure to stick to your trading plan and write down your results in a trading journal. This might be helpful in tracking your progress and identifying the best time to trade for you when choosing to trade CFDs on stocks.
There is no right answer to the question “what is the best possible time to trade?”, as it depends on many factors. The answer to this question can be different according to one’s trading approach, the timeframe they trade and the market they target. Following the market and checking the news may be a very useful habit for both novice and experienced traders.
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