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Forex markets

Trading in the forex markets is unlike any other for many reasons, and yet new fx traders fail to realise this before it is too late, continuing to apply the tried and tested techniques which have worked in other markets, such as stocks and shares, which simply do not work in the fx market. Why? Because the forex market has a unique structure which is unlike any other, and very different to the traditional and prescriptive open and closing times of the central exchanges for options, equities and futures. The forex market hours are of course very different, and based on a 24 hour clock, with trading sentiment and mood transferring from one market centre to another, with no breaks. The reason for this of course, is that the forex markets are unregulated, and as such have no centralised exchange to either regulate the market or indeed to define the forex markets hours, with trading continuing all round the clock, seven days a week. This is in itself comes as a surprise to many forex traders, who have been educated in the belief that the forex markets are only open five days a week, which is simply not true, and simply reflects the fact that the market maker brokers, so beloved by the forex retail trader, refuse to open over the weekends! However, somewhere in the world traders will be trading currency, whatever day of the week, and this continues over the weekend, making the forex market the only financial instrument that is traded seven days a week.

Market hours forex

This continuous price action in the forex markets creates many problems particularly for us as technical chartists, analysing the forex charts on a regular basis, and in order to make some sense of this technically, we need to break the forex market hours up into more manageable sessions, since we have no central exchange to confirm the open and close of each trading session. In forex trading, everything is relative, and the open for a trader in Asia is very different to the open for a trader in London, with market sentiment in one geographical location not necessarily followed in another, as markets overlap. As a result we have to create synthetic trading hours for ourselves, and the best way to do this is to break the trading session up using the four hour charts. This allows us to treat each trading session independently by breaking the trading day up into three eight hour session as we trade around the clock. The reason for using three sessions of eight hours, is simply that the three major moeny centres of London, New York and Tokyo, dominate the foreign exchange markets in terms of transaction volume, and in this way we can then delineate the three major trading sessions of the UK, US and Asia. So let’s look at two forex charts for the eur usd, one based on a four hour timescale and the other on eight hours, but both over the same number of periods, so the first has 48 periods, and the second has 24 periods.

Forex markets hours chart

forex market hours using the four hour chart

Forex trading hours using the four hour chart

forex trading hours chart using the eight hour candle for the eur usd

Forex trading hours using the eight hour chart

Using the four hour and eight hour charts above, allows us to divide the forex trading day up into manageable and meaningful sessions. This allows us to analyse more accurately the changing market sentiment towards each currency pair, as the major trading centres around the world overlap and eventually close, with the forex markets moving from one time zone to another. So how do we use these ‘synthetic’ forex market times to develop our trading strategy and forex signals – let’s take a look at the major trading centres and the key times for trading as a result.