Why You Need to Pay Attention to Market Hours as a Forex Trader

15-08-2017 | Dojo |

Why You Need to Pay Attention to Market Hours as a Forex Trader

Given that an estimated $5.1 trillion is traded each day on the forex market, there is no doubt that this entity is the most popular of its type in the world.

It is also the single most volatile, however, with currencies prone to sudden periods of growth and depreciation according to the wider, macroeconomic climate. The U.S. Dollar (USD) has provided a prominent example in recent times, with the once omnipotent greenback having dropped 8% against the pound (GBP) since May against fallen to a 12-month low against the Euro (EUR).

The volatile nature of the foreign exchange creates challenges for traders, so it is important to pay close attention to details such as the market’s hours. With three distinct sessions accessible across each 24-hour period, traders need to understand the mechanics of the market in order to optimise their trades accordingly. Here are three benefits of this:

Determine How Much Time You Have to Make Trades

Essentially, the forex market open on Sunday at 22:00 (GMT) and closes the following Friday at 22:00. Not all trading periods have been created equal, however, so it is important to understand how often progressive opportunities are likely to emerge during each trading hour.

As a general rule, traders are active in a non-trending market for 70% of each hour. This leaves 30% of activity that takes place in a trending market, so it is important to determine which of these environments best suits you before defining your strategy.

Those of you who prefer trading in a choppy and volatile market can profit for 70% of the time, for example, while investors who adopt a more risk-averse approach and like to follow trends have the remaining 30% in which to make their moves.

Understanding this will help you to determine how much time you have to execute orders, while also enabling you to identify when to act and implement your strategy.

You Can Identify the Most Lucrative Trading Sessions

Understanding the structure and nature of the forex market also makes it possible to identify the most lucrative trading sessions. This is important, as it means that you can create a viable trading strategy that enables you to make the most of your capital.

In general terms, the best forex trading hours occur during the London trading session. The London market is the single biggest forex entity of its type, while it also has an intrinsic link to the vast European market.

There are also a number of key data-sets and events that take place during this session, each of which can have a key bearing on your trades and core decision making. So while you may alter your schedule depending on the precise currencies that you trade, understanding the popularity of the London session may be crucial to your cause.

You Can Regulate Your Account for the Periods Where You Are Inactive

Whether you trade full-time or as a part-time endeavour, you are unlikely to be active on your account over the course of a 24-hour period. So, once you have comprehended the structure of the forex market, you can create an optimised strategy while also regulating your account for the periods where you are inactive.

If you intend to trade during the London session and rest during the Asia-Pacific alternative, for example, it is important that you add a stop loss to your account. This will establish a predetermined threshold at which a position is automatically closed, in order to prevent you recording significant losses against your investment.

Again, this is not possible without understanding the forex market hours and its underlying structure, and this is part of the basic learning that you have to undertake when becoming a trader.

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