Forex does not rest and that either makes it the most thrilling or the most tiresome thing about it depending on the phase of the trading process you are going through. FXCM Markets trades on the entire range of global forex trading with times starting on Sunday evening through until Friday night, providing the traders access to the currency market all five days long with the Sydney session opening the baton, then Tokyo, then London and finally New York closing the baton the same day being almost 1 day earlier on the other end of the planet. Knowing the interactions between these sessions, where they intersect and how their intersections impact volatility, and liquidity is not merely interesting market trivia, but rather actually useful information in that it directly impacts the choice of which pairs can and should be traded in, when your strategy has the highest likelihood of generating clean setups, and when the correct decision to be taken during a trading day is sitting on your hands.
The Asian session encompasses the Tokyo market between midnights and nine in the morning Malaysian time with a relatively constrained volatility in most major pairs and the yen crosses and Australian dollar pairs experience the most significant price action. The session would be more accepting of technical levels than its European and American equivalents since institutional order flow is lower and price would not trend aggressively but rather consolidate. The nature of most Asian session trading tends to favour range-based trading with fixed support and resistance and can be found more conducive to traders who would like to take advantage of the fixed price ranges that often characterise the time before and after the peak London hours when large institutional traders are executing significant orders into the market at the same time resulting in momentum trades that may run hard and fast before reversing on the other end as abruptly as before and leaving late entrants badly positioned.
Opening in London session at about three in the afternoon, Malaysian time and instantly changing the whole nature of the forex market as though one is turning the volume up a few notches at the same time. The European banks, institutional funds, multinational corporations that deal with the currency exposure and the professional traders all come to play at the same time thus giving liquidity and direction confidence that creates most sure and consistent trending movement in the euro, pound and Swiss franc related pairs. Bid/ask spreads narrow considerably with the increase in liquidity within a given market, i.e. the quality of the execution is higher and the cost of entry and/or exit divides is less than in quieter markets. The focus of many professional traders in arranging their entire trading day around London session constructions is exactly due to the combination of tight spreads, true institutional trading, and momentum driven price action, where well designed technical setups will have their best results on a statistically significant sample of the trades.
New York session overlap with London by a period of about four hours- about nine to one in the Malaysian evening time, and this trading time frame is generally regarded as the most valuable trading time of the whole forex week. Group liquidity between the two financial powerhouses brings the narrowest spreads of the day on EUR/USD, GBP/USD and USD/JPY and economic news announcements in the United States over the period can give rise to explosive directional movements that can be covered in a matter of minutes that could otherwise take days during less active periods. Traders that have a plan in terms of how to handle their positions in the face of those data releases and know what data is actually being released during this overlap, squeeze much more out of this window than traders who merely understand that it is theoretically active but have not yet linked that insight to actual trade management choices.
The silent intervals are no less important than the active ones. Liquidity thinning intensifies every Friday afternoon, as traders unwind exposure throughout the weekend, and create erratic low conviction price behavior that may on occasion stop out positions placed in cleaner market conditions earlier in the week. The Sunday evening opening gaps sometimes contribute to frustrate traders who open positions over the weekend and base them on the technical outlook of the day before to realize that Monday opens at significantly different levels. Adhering to these structural rhythms and making position size and strategy choice choices based on this structural rhythm is what divides traders who trade with market conditions and traders who combat market conditions needlessly.