The best times to trade the forex beginner strategy
The forex beginner strategy looks to take advantage of a trending market environment. In order for a trend to become established, there needs to be a significant shift in market sentiment so that either the buyers or the sellers take control, driving the price in one direction.
This shift predominantly establishes a trend. This generally happens when there is enough liquidity in the markets.
Even though forex is a 24 hour market from the opening of the Asian session on Sunday evening (GMT) until the close of the American session on Friday evening (GMT), there are optimal times to trade within that period, because there are times when the market is more liquid than others.
Financial institutions move the price
The markets are most liquid and active when banks and financial institutions are participating. They trade billions of dollars every day, causing huge shifts in the supply and demand of any particular currency. This ultimately causes the price of a currency pair to rise or fall. It is when the banks and financial institutions are moving the price that a trend is more likely to be established.
The best times to trade are with the banks and financial institutions
The following shows you when the markets are considered to be active. You should bear in mind that this information is very general and only a rule of thumb.
The forex market is generally most active and liquid in the European session, from 8:00 to 17:00 GMT.
If you limit your trading to these times while you are beginning to learn, then you are ensuring that you only trade in the most liquid market conditions that is likely to result in trending price movements.
The financial markets are particularly active at the open of these sessions, such as when the London market opens at 8:00 GMT and at the open of the New York session at 13:00 (GMT).
Trading activity can fall in "mid-sessions"
A mid-session is when traders in so called active sessions, become less active for a period of time. For example, during lunch or when traders in one region go home for the day.
An example is the time between 11:00 and 13:00 GMT, when European traders are at lunch and are also waiting for the New York session to open. Another example is 17:00 – 19:00 GMT when European traders go home for the day and US traders go to lunch.
Mid-sessions are something to consider if you enter during the middle of a trading sessions. To get the very best market conditions, you may want to avoid starting your trading day in a mid-session, if you observe that the markets seems to be low in activity.
Session activity is not set in stone
Not all European and New York sessions are highly liquid all of the time and Asian sessions do not result in low activity and ranging/consolidating markets all of the time.
It is therefore useful to be able to recognise low liquidity periods directly on a chart.
Consolidation can indicate low activity
Times of low liquidity can be identified on price charts when consolidation is visible. This indicates that the market liquidity is low. The chart below shows price action that is “ranging” or moving sideways with no clear direction:
You can see that the market is consolidating during low liquidity hours and so in these times, you could stay out of the market until a trend has been established.
A highly liquid market can be recognised when there are large candle bodies, all the price is moving in a clear direction, as shown in the chart below:
You can see that the market is in a clear trend to the upside. These market conditions are ideal for trending strategies such as the beginner strategy.
You should note that this type of analysis – that is looking to see if the market is generally trending or ranging – should be carried out on the higher time frame that you determine the market direction on.
So far you have learned:
- the beginner strategy is a trend following strategy and for a trend to become established, market volatility is needed.
- forex is a 24 hour market, and there are times where the market is more liquid and volatile than others.
- the market is most liquid when banks and financial institutions are actively participating.
- the most active and liquid markets are considered to be when the European session starts at 8:00 GMT and finishes at 17:00 GMT.
- mid-sessions are periods of lower liquidity in active trading sessions and happen when traders go to lunch or go home during active sessions.
- highly active and liquid markets can be recognised on price charts.
- a low liquidity market can be recognised when the price has entered a range with no clear direction.
- a highly liquid market can be recognised when the candles have large bodies and are moving in a clear direction.
- this analysis should only be carried out on the higher timer frame that you use to determine the market direction.