Characteristics of The 3 Major Sessions: Asia, Europe & USA
During the Asian market only 8 % of total daily transactions go through Tokyo desks. This is the least active of the three major sessions. Most of this 8% only involves yen based currency pairs with very little transactions happening for other currency pairs. This is the reason why its not suitable to trade during this period. Not trading this period will save you a lot of time and money.
The London/European market takes the lions share of the total transactions, 34% of all transactions are carried out during this session. London time zone is also well placed in terms of business hours for both eastern and western economies, this is when there are market overlaps and this results in high number of transactions during the this period. This time is most liquid and most volatile session for all the currency pairs.
The Europe time zone also includes the euro zone member countries. The Euro zone has 17 members and major banks of these countries are open and there is a lot of liquidity as many transactions are being executed.
The US market takes up 20% of all transactions. The most active time for trading is approximately from 8 am to 12 pm when both London and New York dealing desks are open. This is when there is generally the highest volatility as it is also when the majority of the major US economic announcements are released.
European US Session Overlap
Although the Foreign exchange is open 24 hours a day during the week, there are periods which have a greater volume of trades, thereby increasing the opportunities to make a profit.
For day traders the most productive hours are the London and the US session overlaps and this is the peak for currency transactions is when these two overlap when there is a large volume of transactions and the market is most active.
During this overlap a significant amount of fundamental news is released generating a lot of volatility and the currency prices move fast and there is plenty of opportunities to trade, this overlap offers the best opportunity for those wanting to maximize profit.
The best hours for trading, are during this overlap because the currencies really move and the moves are decisive and offer the best chance to make profits
This is also why Asian traders, Japan will wait until afternoon to start executing their orders, this is the period that will coincide with the Europe and USA sessions.
Asian investors will not open transactions during the Asian time, therefore as an investor from anywhere in the world it is best stay away also, after all even the hedge funds and other pro investors from Asia will avoid this time and wait for until afternoon when it is much easier because of the liquidity during the US and UK overlaps.
Therefore to come up with the best hours using based on these three sessions as shown shown below:
Market Hours and Overlaps
The chart above shows the timetable of when each session starts and when it ends. The chart also shows when there are overlaps and also shows the best hours based on these overlaps.
Determine Your Schedule
The type of trader you are determines your schedule. If you don't have a lot of time then a longer term strategy would suit you best. If on the other hand you have a lot of time then you might decide to set a day trading schedule where you open transactions during the most active market hours. The above chart shows the best GMT times to be in the market - from around 800 GMT and 1800 GMT.
Determine your time frame
To set up a schedule you need to determine your chart time-frame. Try using different chart time-frames until you find the most suitable and comfortable to use in accordance with your schedule.
Test your strategy
Test your strategy on a practice demo account for a period of two months or more. Keep track of every transaction and monitor the progress of your schedule. Try to analyze what times are most profitable for your currency strategy.
Your strategy should be specified on the trading plan that you use.
To learn more about how to specify this in your plan, read the tutorial about Forex plan. This tutorial will show you an example of a format that you can use to specify your schedule.
Forex Trading Plan - Specify Best Hours