Market timing can be a very important component in your trading. If you have a good analytical model, but execute a trade at the wrong time, the best forex trading strategies in the world can be scrapped. Here is a general overview of when it might be a good time to trade.
First of all, the forex market runs 24 hours a day, 6 days a week. It’s officially on several exchanges, but the rates stay virtually the same on all of them due to arbitrage trading which keeps all currency rates pretty close together.
The currency market starts out in New Zealand, Australia, Tokyo and Hong Kong in the Asian-Pacific trading session. It starts out in New Zealand on Monday morning local time.
Then it begins to move across Asia and eventually hits Europe about half way into the Asian-Pacific trading session. So for about the latter half of the Asian trading day, you get the European zone overlapping.
Then it moves to New York where the North American trading session begins. As the Asian session winds down, you get the North American and European zones trading at the same time. This is where you see the most volume and volatility in the forex market.
When London and New York are both open for trading is when it may be the best time to get in and out of trades. This is when liquidity tends to be at it’s highest. Without that liquidity, you might not get the best trading prices for your trades.
Probably the worst time to trade is the afternoon trading session for North America. Europe at this time is winding down and you might not get the liquidity that you need.
The forex market is the largest in the world, with the biggest amount of volume. That means you can’t control, move or manipulate the markets. This also means that you are at the mercy of the market’s liquidity. That is why liquidity is much more of an important issue in forex investing than in other markets.