Learn Forex – Advanced Information
So you think you know everything there is to know about Forex? This article contains some information which may surprise you! This is the latest in a series of articles to help you make the most of your trading, and this one should be useful to scalpers, day traders and swing traders alike. If you would like to know what kind of trader you are, or what kind of trader you should be (based on your personality), please check this article here – Learn Forex: What kind of Forex Trader are you?
Size of the Forex Market
As you probably already know, Forex represents the biggest market in the world, trading around $3.1 trillion each day. This figure is determined by the Bank for International Settlements (BIS) every three years, surveying major Forex market participants and creating estimates of daily volume based on the information gathered.
The last estimate comes from 2007, and it is this work that produces the oft-quoted daily volume figure of $3.1 trillion. Amazingly, this figure showed a jump of 70% from the 2004 estimate. The next survey will be completed this year, with results expected to be published in December 2010.
Why should you care about this information? Because it could make you a more profitable trader! Let’s dig deeper…
Learn Forex Volatility – Choosing the Best Trading Times in Forex
Forex is a unique market, trading 24/5 and open the majority of the time. However, a continuously open market does NOT mean continuous volatility. Many traders who are new to Forex make the mistake of trading at any time and on seemingly any pair – something which professionals do not.
In order to understand why this is, we need to look at the forces driving the market – banks (BIG, rich banks!) and news. We also need to look at the times the individual financial centres of the world are open. If we understand when these centres are open, and know how important each centre is to moving the market, we can begin to understand where the money is – and hopefully profit as a result.
Forex trading starts on Sunday at 10 pm GMT and ends on Friday at 9 pm GMT; with Tokyo, London, and New York being the major sessions and opening and closing in that order. As many readers will doubtless be aware, the Tokyo (Asian) session is a quiet time, despite being larger than the minor-sessions in New Zealand, Australia and the Middle East. Below are the trading times for each major session:
New York session: 1 pm – 9 pm GMT
London session: 8 am – 5 pm GMT
Tokyo session: 12 am – 9 am GMT
Whilst London and New York are the busiest sessions, scalpers and day traders looking to learn which Forex trading times are best should concentrate their efforts on the overlap times of the sessions, which are below:
London (Europe)/Tokyo (Asian) overlap: 2 AM – 4 AM (New York Time)
London/New York (US) overlap: 1 pm – 2 pm GMT
These times have the most volatility, and provide the best times to capture profits. The overlap between the New York and Tokyo session is not worth trading due to low liquidity and consequently, volatility.
The yellow bands on this chart represent the overlaps between Tokyo, London and New York.
Forex Major Sessions – Trading Tips
If you must trade this session, the GBPJPY, GBPCHF and USDJPY are the best pairs to trade, having the most volatility.
Pairs such as EURUSD, EURGBP and EURCHF are best avoided until the London session due to low liquidity.
London is the largest and most important place in the world for Forex, with a market share of at least 30% and a trading volume of approximately $580 billion daily. The London session is a good opportunity to trade pairs like EURUSD, GBPUSD, GBPCHF and GBPJPY, although we recommend you stick to the EURUSD and GBPUSD if you are new to trading. Furthermore, the volume of Yen based pairs, including the GBPJPY, often falls after the session overlap period (above) finishes, making them even more tricky to trade than normal.
The USDCHF pair is a good pair to use for negative correlation with EURUSD in this session – i.e. if you think the EURUSD is going up, there is a good chance the USDCHF will be going down (and vice-versa) – you can use this to give yourself greater confidence in your trade. If you want more detail of this trade setup, please see Page 35 of our free Forex eBook – Learn Forex with “How to Trade Forex” by Marc Walton
- New York
New York is the second most important market in Forex, with approximately 16% of the overall market volume. It is also regarded as a very good market for liquidity. The majority of trades are executed between 1 pm and 5 pm GMT, when European traders are still active. Once the European markets close, however, the market tends to become choppy, and consequently loses momentum. Because of this, you should generally make it a rule not to trade after 5pm GMT.
Unlike other sessions, which are more generally moved by large institutions and – more importantly – news, the New York Forex session is heavily influenced by US Equity, Bond and Futures markets (the USD pairs are correlated negatively with gold and with oil via the USDCAD pair).
The best pairs to trade in the New York session are EURUSD, GBPUSD and USDCAD. USDCHF is also good for negative correlation confirmation on EURUSD trades. Most other dollar-based minor Forex pairs also have a decent level of liquidity.
The GBPJPY and GBPCHF also have a good range in this session, though they should be handled with care and ideally only used by experienced traders.
The EURCHF and EURGBP should be left alone in this session as liquidity evaporates during the overlap between the sessions and does not establish itself again until the following London open.
Learn Forex – Using Probability to Enhance Your Trading
For day traders and swing traders, the following information may be very useful indeed.
EURUSD Probability Distribution:
|Daily||79.23% chance of 100 – 150 pip move|
|3 Days||78.01% chance of 100 – 250 pip move|
|5 Day/ Week||81.97% chance of 100 – 300 pip move|
Rather than take up space here, for more information like this please refer to this useful eBook – Learn Forex: Probability of Price Move Continuation
There are some real golden nuggets of information here, which can only add to your trading knowledge and make you more profitable. If you liked this article, you might want to check our guide to creating your own Forex System – Learn Forex: Create Your Own Forex System – and apply what you have learned here to your own trading methods.
If you found this article useful (which we really hope you did!) you may like to download Marc’s brilliant FREE eBook, which is packed full of useful information like this, and will really help you in your trading.
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