As we have already seen, the volumes and liquidity of the forex markets vary dramatically throughout the 24 hour trading session, as one market closes and another opens, with short periods when the major money centres of London, New York and Tokyo, overlap, creating increased depth and trading volumes as a result. However, the open of a trading session for a trader in Japan, is very different from that for a forex trader in London, and as traders we need to understand the market characteristics for each, which should help us to develop some forex signals for us to use as part of our forex strategies.

Far East forex markets

Sit through an entire Asian trading session as I have done many times, and it will almost certainly send you to sleep, with forex markets often trading in a very narrow range , or moving erratically in relatively large moves, but with no discernible trend, and lacking a firm direction. Both of these trading characteristics are typical of thin markets which in many cases are best avoided. The bulk of the fx volumes handled during the Asian session are traded in four major money centres, namely Tokyo, Hong Kong, Sydney and Singapore, and because the banks in the region tend to be in competition with one another, then this is seen in the market as spiky price action which lacks trends. In addition the principle traders in the Asian markets are exporters and the big central banks, neither of whom like to see market volatility, and therefore take every action to prevent extreme price moves as a result.

The Asian fx market session is typified with thin volumes and with the lack of liquidity, Asian forex traders will normally test the limits of any previous range, often falling back and consolidating, with the banks playing their part to dampen down any market volatility. This is the reason we often see an extended period of sideways consolidation in the Asian trading session, with no clear forex signals for us to trade, and typically the forex real time charts will be a string of small doji cross candles, which can be very frustrating and difficult to trade.

London fx market characteristics

London of course still retains its role as the trading capital of the world, and for the forex market this is still the case, and indeed provides us with an excellent guide to overall market sentiment as a result. The key point to realise is that with Europe opening at 7am followed by London at 8am, then in the space of 1 hour not only do we have London trading, but in addition all the major European banking centres such as Geneva, Paris, Frankfurt and Geneva. The currency moves that take place during the trading session between 8am and the New York open at 1pm, are generally based on real money between large corporates and for mergers and acquisitions. As such, this tells us a great deal about the currency markets, and is the first of our major trading signals. Put simply, it is this – in such deep markets, any move in forex capital markets has to be supported by the underlying sentiment, and therefore any move in this trading session should be taken as an excellent indicator of broader market sentiment.  In terms of the other markets, London remains the most important and certainly is larger in terms of volume than New York. As a result, trends set in these forex market hours, tend to set the tone for later in the day, unless there is a significant piece of fundamental news such as the Non Farm Payroll or other key leading indicators for the economy. This is what makes trading the New York fx market session extremely difficult, with the US traders looking to continue the established trend, set in London, before the major fundamental news items begin to appear, with many major reversals starting at around 10am New York time. This is a key time to watch the charts and for any forex signals of an impending reversal as a result. This period is also extremely fluid as it runs into two other significant events, namely the London fix, and also the close in Europe, with European fx traders winding down their positions as the US markets get into full swing.

New York forex market characteristics

The late morning reversal in the US market is one of the key forex signals to trade, and is one where professional forex traders make a great deal of money as a result, but as I have outlined above it is not the easiest session to trade, with so many factors affecting trading sentiment in a relatively short space of time. The reasons for this are varied and often follow the same pattern each day. The London trading session establishes the broader market trend for forex pairs, with real money flows and deep markets, which tend to remain established throughout the morning period. As the New York open approaches, the US traders arrive to log in to their trading platforms, looking for trading opportunities ahead of the first item of fundamental news which is generally released around 1.30 pm GMT. Once released, the news is absorbed by the markets and around 3pm, the European traders begin to close their positions knowing that market liquidity will drop dramatically once both the UK and London markets close, and therefore this tends to create a surge in trading activity as traders in both London and Europe look to square positions as a result. In addition, and to further complicate this forex trading session, we also have the London Fix at 3pm followed 2 hours later by the New York options cut, where volatility in thin trading markets is also evident.

As such the late morning session in New York is one of the best times for a forex trader provided you understand the underlying sentiment of the market players outlined above. So how do we take advantage of this knowledge, and create our forex signals – the answer is pivot points, one of the principle forex trading strategies I use, and based on our knowledge of the forex market times, coupled with our ‘synthetic’ forex trading hours, outlined earlier.