By Admiral Markets
Dear Traders,
Price action is always popular with traders and rightfully so. But I always recommend traders to keep in mind the importance of time, too.
This article explains the impact of time on analysis and trading decisions. It also reviews how to be properly prepared for the trading day and week.
Price action traders would probably say no without perhaps realising that charts are in fact a combination of both price and time. The right side (vertical axis) shows price and the bottom (horizontal) shows time.
So, going back to the question of does time count, my answer is yes, time is important in various ways such as my
time factor pattern and fractal.
Free Reports:
But time also impacts the market in other ways, such as trading zones to time frames. This article reviews the multiple angles connected to time, such as:
Source: babypips
The first obvious time boundary are the opening hours of the market. The Forex retail market is open 24 hours a day for 5 days a week, whereas major banks remain open during the entire week. The market is also closed during a couple of major holidays like New Year’s Eve.
The notable advantage of the Forex market is its lengthy opening hours and hence the ease of market access, which stands in stark contrast with some of the other markets that are only open 6 hours a day.
The second important factor is that the trading day can be split in four different sessions because Forex spans the entire globe:
Each of these sessions has open and closing times (see table 1 and 2 above). These times vary by one hour depending on summer and winter times.
The highs and lows of the session such as the Tokyo session are often used for support and resistance purposes, breakouts, and bounces. The same holds true for the London opening hour. Nenad even explains a trading system based on those hours in the video below.
Not all of the sessions are separated. The London and New York sessions in fact overlap for 4 hours a day, whereas London and Tokyo overlap one hour during the summer time.
The average pip movement per currency pair for three of the sessions is summarized in table 3. As you can see:
The session and day could also occasionally impact the spread. For instance, the USD/CAD on Sunday could potentially have a higher spread an hour after the market opened than on for instance Monday during the New York session due to timing. The spread can change when
volatility is very low or high, which could occur before and after weekend (low) or during news events (high).
The best pairs to trade are typically not the lower volatility pairs of each session, unless a trader is keeping a intra-week or long-term trade of course.
Source: babypips
Another key factor is the location of the trading day within the trading week and its expected impact on price movement. This is also valid for the trading day within the trading month.
From my own trading experience I can say that the type of trading day has an impact on the expected volatility:
The main reason behind this phenomenon is relatively simple: the weekend. Price action tends to slow down before and after this break but pick up during the week.
The Monday market tends to be a bit sleepy and new boundaries of last week’s trading action are slowly (re)tested. Price action has to almost ‘warm-up‘. Personally I want to see tone and mode of the week before entering a position, which is something I discuss in my
weekly Forex video.
Friday is known as a profit taking day, which means it could be volatile with ups and downs as trading positions are sometimes closed prior to the weekend (depending on your trading style). Friday’s price action slows down at the end the weekend comes closer. Looking into the benefits of
volatility protection settings is always useful when discussing volatility.
The other three days of the week – Tuesdays, Wednesdays and Thursdays – have a higher chance of seeing large(r) price movement, more trend continuations, less choppiness and less ranges. This does not imply that each trading day will behave as such. It simply states that on average trending price action and larger price movements have more chance of developing during these days.
Personally, I am a fan of trading on Tuesday, Wednesday and Thursday, but Monday afternoon and Friday morning can also be interesting depending on the market structure.
An identical logic can be used for the first and last trading days of the month. Swing traders could be more cautious on the first and last day of the month. The first day offers support and resistance levels that need to be tested, whereas the last day could be potentially more volatile due to profit taking.
Cheers and safe trading,
Chris
Source: How Do Trading Hours Impact the Forex and Financial Markets?
Admiral Markets is a leading online provider, offering trading with Forex and CFDs on stocks, indices, precious metals and energy.