Each market (stock, Forex, bonds, futures, commodity) has its own specifics and particulars.
Markets are known to have a certain rhythm or heartbeat but usually the pace differs due to local market variations.
Today’s article describes the rhythm of the intra-day Forex market and will sum up its main and most important characteristics.
Let us start with the obvious. First of all, the Forex market is open 24 hours a day, and 5 days a week. Other markets, such as stock markets, are only open a quarter of that time (usually 6 hours). This means that the market is readily available for all types of traders throughout the week and in all time zones.
0 – FEW GAPS
One of the consequences of a 24-hours-a-day market is the fact that there are hardly any gaps between the daily close and the next day’s open. Therefore, gaps usually do not impact the market. The exception is after the weekend open when the market has been closed for 48 hours. In those cases gaps could be present and impact price movement, although usually gaps get filled quickly within Monday’s Asian session. The longer a gap takes to get filled; the less likely the gap will have an impact on price. In fact, in most cases I would not be too concerned with gaps.
3 SESSIONS A DAY
The Forex market has 3 major sessions per trading day. Those are the Sydney & Tokyo session, London session and New York session. Together they cover the entire 24 hour trading day. It is vital to know in which session a trader is trading, as each session has its own characteristics (more on that later on).
Each new trading day starts with the Sydney and Tokyo session. This means that the levels of the previous sessions (New York) are history; they are in fact part of yesterday’s trading day. Or in other words, when the New York trading session ends the entire trading day also is completed. Yesterday’s levels are important for the market, such as its daily high, low and close. But it is vital to realize that a new trading day is a new entity, with new (intra-day) Pivot Point levels, new estimated highs and lows, new sessions, and different daily characteristics.
Each trading day is known to have different characteristics. Monday is usually a slower day and often ends up as a daily doji (candle stick pattern). On average, trading breakouts on Monday could be problematic (of course there are exceptions). Tuesday, Wednesday and Thursday have higher averages of movements. Typically around 2 to 3 of the sessions of these 3 days move intensively; the rest of the sessions often have spikes up and down or are range bound. Friday is a less reliable trading day as some of the trends and momentum can encounter retracements. Also the volatility decreases as the close for the weekend approaches and wicks occur more often.
TOKYO & SYDNEY SESSION
The Tokyo and Sydney session is known for its quietness and low volatility. Price often is travelling between 2 tight ranges. This is especially true for currency pairs which do not have an economy on the Asian or Australian continent. The currencies that do have their stock market open tend to be the biggest movers during this session, such as the USDJPY, EURJPY, GBPJPY, AUDUSD, NZDUSD. After the first 3 hours of the Tokyo session, the market is considered to have made its first initial high and first initial low of the day.
The EURUSD and GBPUSD, for instance, are slow movers and often do not exceed a range of 30 pips, which is measured from the top to the bottom of the range. I completed a study which reviewed the GBPUSD during the Asian session for an entire year and in 91% of the days the range did not exceed 30 pips; only in 9% of the cases did the price move more than 30 pips. When price did move more than 30 pips there was often a bigger momentum taking place on the daily chart.
The London session has the biggest movement and volatility in the Forex market of any session. The volatility is roughly equal to each other from open to start, although could it pick up slightly more with the New York open. That volatility does not have to translate into neat trends; price can make big moves up and down. Especially at the beginning of the session and during news events the market is “less stable” and price is especially vulnerable to spikes up and down.
NEW YORK SESSION
Price is the most volatile at the beginning of its session when London is open. The lunchtime of the New York traders is the same time when London traders close shop, so a drop in volatility occurs for the remainder of the New York session on average. There are occasional exceptions when the Forex market moves a fair share but seem to have limited occurrences.
SPREADS PER SESSION
Be aware that the spreads of currency pairs can vary per session (depending from broker to broker). Spreads tend to be tighter during the London session than just before New York close.
DAY TYPE: SLEEP OR AWAKE?
Each trading session and day usually has its own character or atmosphere: either trending or ranging. Some trading days will only have price moving sideways; whereas other trading days could see price continuously breaking into new extremes. The type of day will heavily impact the success rate of a strategy: trending and breakout strategies encounter harsh resistance with range markets; whereas range strategies meet difficulties with trending markets.
Typically, price will make many ups and downs even before a trending market starts. This pre-market volatility could be very intense and often occurs in the London session as certain currency pairs wake up from their Tokyo session “sleep” (see above). The number of spikes up and down could be numerous before a trending day starts. Some traders refer to this as stop hunting or grabbing from the big banks. Whether you agree or not; the first 2 hours of London session are always times of caution.
Well traders, this wraps up some of the key elements of intra-day market in Forex.
Do you have tips or tricks you can share with the readers?
What did you notice when trading or analyzing intra-day?
Thanks for sharing and reading and wish you Happy Trading!
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