Liquidity and Volatility

During what times is the market most liquid? In other words, when is it easiest to enter and exit positions? And, during what times is the currency you're trading the most volatile? (Volatility is how much price changes in a specific period of time. The answer to these questions depends on the day of the week and the time of day the trading is occurring.

A Day to Avoid

If your strategy depends on recent intraday price history, and your broker is based in the U.S., consider staying out of the market on Sunday. U.S. brokers miss one hour of trading every Sunday, so their charts are less than completely accurate. Sign on with a non-U.S. broker, such as Alpari (UK) or Dukascopy, to solve this problem.

Best Times of the Day to Trade

Learn the start and end times of the different sessions:

London session hours are 8:00 to 17:00 GMT. New York session, 13:00 to 22:00 GMT; Sydney, 22:00 to 7:00 GMT and Tokyo, midnight to 9:00 GMT.

Understand that these times are only guidelines; London traders may start their day earlier than 8:00, for example. Get aware of this by watching price action closely about an hour before the stated session start time. Watch especially the length of the candle, regardless of the timeframe(s) you trades on. Candle length grows noticeably when London and New York sessions start, and shrinks when they end.

If you like high volatility and liquidity, trade when the most volatile sessions--London and New York--overlap: 13:00 to 17:00 GMT. (source http://www.forexmarkethours.com)

If you prefer times when price is less likely to shatter your stop loss, trade during the low volatility Sydney or Tokyo sessions.

Avoid News Time

Another factor to consider is news time. The bigger potential impact that a news event has on the currency pair you're trading, the wiser it is to wait until after the news has passed before you take a position.

This is especially true of the Non Farm Payroll (NFP) report, usually released on the first Friday of each month. Even veteran traders avoid NFP, because volatility may jump to several times the average, and price direction can change violently. Wait at least five minutes after NFP's release before trading.

Also, in the hours before a news event, price may range in anticipation of the news. Use a range-oriented strategy if you want to trade such times.

Ultimately, your trading strategy and temperament will determine the best time to trade. Find your best time by first backtesting your strategy during as many different times as possible. Do at least two full months of backtesting before forward testing your strategy on a demo account.