To have a profitable Forex trading experience, getting your timing right is the essential part.
In the following article, we will guide you with supportive data on the most profitable Forex trading times based on which of the below-mentioned trader you are:
- A long-term swing/position trader or a day trader.
- A trader that uses trending trading strategies/ranging/momentum price behavior.
You can gain guidance through this article by adjusting the number of trades you make at different times, so you are staking more on the days of the week or hours of the day, that have been profitable for your trading considering the history.
Through this, you will be able to enhance your trading edge and move on to higher trading benefits. Different TradeFXUK’s top-rated Forex and CFDs brokers allow you to trade on Forex and CFD’s.
Best Time of the Month for Trading Forex
According to the majority of traders, the Forex markets are likely to behave oddly at the beginning or end of every calendar month. Logically, the reason behind this is that investors and investment solutions, most of the time, decide to change their investments during these times.
Now, if this belief is correct, we should expect trend reversals and relatively higher volatility in the trades that are placed at the turns of the calendar.
We can check this by taking a look at the table below. The table provides a comparison of the average daily volatility of the major Forex currency pairs on the first trading days of a new month and the fifteenth of each month.
According to history, it is evident that there has been no increase in volatility of the major Forex pairs at the start or end of the months than it has been on any other time of the month.
What is the case for trend reversals?
Do we have any historical evidence that the trends tend to reverse at the turns of the calendar? So, let’s check this by checking fifty-day breakouts tend to be more successful when they take place at the start of the new month in comparison to their success over the other days, by testing the average price movement of the next day.
All in all, the trade trend breakouts are more likely to have a higher probability of failing at the beginning of the new months in comparison to other times.
Hence, the trend traders need to keep in mind that historically the beginning and the end of the month’s calendar has not been in their favor. The prices have an unusually high tendency to reverse its trend, and for this reason, it’s not the best time to enter new trades.
On the other hand, range traders should be aware that the very start and very end of the calendar month have always been the best time for entering new trades because of the same reason.
Best Day of the Week for Trading Forex
To trade Forex, the day of the week plays an important role. However, the importance of the factor varies depending upon the type of trader you are that is a longer-term swing/position trader or a day trader.
If you are considering the risks that come along, then remember that day traders never leave their trades open for the weekend.
Long-term traders should be aware of the fact that there are significant risks that come if they leave their trades open on the weekends. The reason behind this is that the stop losses may exceed when the market starts the next week, having a price gap more than the stop loss.
Hence, there is a probability of losing much more than you expected in worst-case scenarios. However, you are not allowed to leave Forex trades on the weekends, except for a few brokerages that allow weekend trading opportunities to the traders.
Are you a longer-term trader who wishes to make a winning trade that continues for a few days? Then you must be aware that the earlier you enter the trade in a week, the better chances you get to exit trades with huge profits. If you delay and the weekend comes over, you will have to bear huge risks due to open trades at the weekends.
Many people believe that the Forex market typically begins quietly at the starting of the week and gradually enhances volatility as the week moves towards the weekend. According to previous data, this is a fact. You can see the average price movements of major Forex currency pairs by day of the week below:
If you are among the traders, then you should target trades in the most volatile periods. For instance, for you, Monday might be the day that you must not be in the market, whereas you must never miss Thursdays as a day trader.
It is clear that for all the three major currency pairs, Monday proved to be a quiet day, and Thursday was the largest in terms of average price movements.
In case you are a position or swing trader, it is logical that you make use of the data before entering new trades at the beginning of the week and before leaving the market before the weekend when the volatility rate is high.
However, some more factors are to be considered based on if you are willing to gain profits from range-trading or trend-trading. Therefore, we will mention them at the end of this section of the article.
The problems that we discussed here regarding the day of the week in Forex trading are famous, having logical reasons for each of the differences.
You might notice significant changes in the Forex market with every new announcement of the government or the central banks, especially regarding the US Dollar. Most of the time, the information tends to be released right before the weekend, with none scheduled on Mondays.
One more factor to consider is the Forex convention to charge a triple swap for New York’s closing trades on Wednesday. So, here the traders can trade cheaply after this day passes that is on Thursdays and Fridays. For this reason, the volatility keeps increasing at the end of the working week.
Lastly, remember that trading on the public holidays in the country whose currency you are trading is likely to have low volatility for Forex currency pairs.
Best Day of the Week for Swing/Position Traders
As we have shared before in this article, there is an advantage in entering new trades as first as possible in the week for longer-term traders. Additional factors to take into consideration include the type of trading strategy that is either trading trends or trading ranges.
It is famously known the Forex market begins typically indecisively at the beginning of the week that is by changing directions over Monday and Tuesday.
The market proceeds more decisively towards the end of the week that is from Wednesday to Friday. In the given chart, you will see how fifty-day breakouts performed for the next day by day of the week entered for the major Forex currency pairs:
We can observe that there is some evidence in the fact that the best entries for long-term trend traders are likely to occur on Wednesday and Thursday. The traders with the strategy of trading ranges tend to become more successful if they enter trades at the end of Friday or on Monday.
Best Time of the Day to Trade Forex
If you are a longer-term position trader or a day trader, you will love to discover whether historically there has been an additional advantage if entered trades at a specific time of the day. The day traders who keep entering transactions intensively while making effective use of the time of the day, this information will be of crucial importance.
Obviously, because of international trades, the currencies keep fluctuating in the business hours of the day. So applying this logic, if you are living in Asia and want to trade in the day, for instance, you will notice that the most price movement by the trading of Asian currency enhances like the AUD/JPY.
You might find this confusing recalling that the trades made in London and New York dominate the global Forex market. Here the highest volumes of currency exchanges take place in comparison to any other market.
Hence, the best Forex price movement you will observe in London and New York is during their business hours. The peak time to trade is when both centers are open at the same time.
So, you can compare them by comparing the average price movement by the major Forex currency pairs for the eight-four hour time that make a day using London time.
The largest average in all the major Forex currency pairs took place from Noon to 4 pm by London time that is the overlap of both London and New York.
The second most active time has been 8 am to Noon, which represents the initial few hours of the London business day. The hours when the day ends near the New York close, before opening in Tokyo, showing the least average price movement.
For all the day traders out there wanting to earn profits from the highest volatility hours of the day, make sure to focus on the active hours in a day. However, if you live in a region that is far from UTC, it will get troublesome to match the busy hours of the market. Considering this, you must prefer becoming a position or a swing trader.
Another way is to trade only those currencies whose owning countries match with your working hours, so you are not required to set the alarm for waking up at night. So for an Australian trader, for example, it is best to trade AUD/NZD, AUD/JPY, and AUD/USD.
The last problem that comes into consideration when discussing hours of the day is the spreads. These represent the cost of trades and are most likely to be narrowest when the market is high on activity.
The major currency pairs might find tightest spreads on the London/New York overlap, whereas the Asian currency will see the Asian sessions the most beneficial in terms of spreads.
Are Specific Times of Day Better for Trends or Ranges?
All types of traders need to consider this. The reason is that there might be the best or worst time for trade entries depending upon every trader’s strategy in case the price tends to trend differently depending on hours of the day.
To answer this, we should compare the average of four hours after a fifty-day breakout in one of the three major Forex currency pairs, based on the hours of the day (London time) the breakouts took place:
To Sum Up
So we can now say that that the individuals willing for trend trading have the most opportunity of getting strong price movements at around London time, with 8 am a close second. However, range traders can get price movements in their favor from 8 pm to Midnight.
Remember that paying heed to hours of a day, week, or month is not a Forex trading strategy. The data that comes for these factors help you in enhancing the edge of a good trading strategy. You can do this by risking some more when the timing is in your favor and a little less when it is not.
The summary of the critical edges traders should apply given below:
- Watch out when entering trades at the start of a calendar month.
- The day traders can make the most out of Thursdays and the least out of Monday.
- For Longer-term trend traders, price movements tend to be in your favor on Thursdays and Fridays.
- The range traders often see ranges hold on Mondays and Tuesdays.
- The most significant price movement in the major Forex currency pairs has been observed from Noon to 4 pm London time, showing a London/New York overlap.
- The lowest price movement in the major Forex currency pairs is seen from 8 pm onwards till Midnight London time.
- The three major Forex currency pairs have shown the most remarkable propensity to trend from 4 pm to 8 pm, where the direction of the day usually establishes by 4 pm.
- The major Forex currency pairs have shown the most remarkable propensity to trend from Midnight to 4 am London time.
Methodology
All the data given above is taken from publicly available Forex price data from a Major Forex brokerage. The period of this historical data is from the mid of 2001 till August of 2020, which is almost twenty years of tracking.
FAQs:
What are the best months of the calendar for trading forex?
The last few months tend to have the most spectacular Forex trends, whereas July and August have a track record of producing low ranging prices and volatility.
What is the best Forex pair for trading?
The EUR/USD currency pair as it mostly has the lowest trading cost and is likely to trend more reliably gradually.
What is the best time to trade Forex in the UK?
The first best time top trade is from Noon and 4 pm London time while the second best is from 8 am till Noon.
What time do Forex markets open?
The Forex markets operate twenty-four hours a day in the business days, starting from 9 am Monday (Sydney) till 5 pm Friday (New York).
