A very often overlooked but extremely important factor to consider when trading the forex market is the actual time when you are trading. Because the forex market is open 24 hours, many traders believe all hours are the same. This is not the case and can prove to be a costly mistake. The reason the time is such an important factor while trading the forex market is due to the fact that volumes vary greatly according to what hour of the day it is in the principal markets in the world. The forex market is huge and actually dwarfs the stock market with over $ 3. 2 trillion changing hands every single day. It is the most liquid market in the world, but even with its huge volume the price action in the forex market is greatly influenced by the trading hours of the principal players in the world. The most important trading sessions are the US, Asian, and the London session.
The best hours to trade are between the opening of the London markets at 22:00 GMT and up to the close of the US markets at 22:00 GMT. The absolute busiest and best hours occurs when the London and US markets coincide, which occurs between 13:00 GMT and 16:00 GMT. During these hours volume is at its peak and the market has therefore a much better chance of making a big trending move. These are the moves traders should be looking for and which present the greatest opportunity for profits.
Trading outside of these recommended hours can be risky for many reasons. Because of low volume, moves are short lived and price action can be very choppy. Under these market conditions it is very difficult to place profitable trades. Low action can also lead to what is known as "boredom trading", which refers to trades placed because of boredom and almost always result in losing trades.
Knowing the best hours for trading should be used to your advantage. You should look to place trades only during these hours, or at the very least plan accordingly to be at your trading desk during these hours. You should also perform market research or plan your trades during the hours that are not recommended for trading, or even take a break from your computer during these hours.