Learn how to maximize your profits in forex trading by knowing when to buy and sell. Discover the best strategies and most profitable times to buy in the forex market with our expert tips.
In a forex trade, traders exhibit different approaches and styles. Since the forex market is one of the world's largest and most fluid, there are many ways tobuy or sell. Therefore, knowing when to trade depends on your strategies, market opening times and more.
According to most traders,when to buy and sell in forexis when the market is most active- when volatility and liquidity are high.
Nonetheless, based on scientific research, you need to combine technical and fundamental analysis to bring the best profit in the long run. In this article, we explore the concept of buying and selling forex to help you advance your forex trading experience.
Trading Timing
Successful forex trading always boils down to timing. While some traders lose money due to terrible timing, others are rewarded with the best short-term gains.
When traders believe in timing strategies like buy and hold,they know that better market return can only happen in the long investment run. However, you must note that a buy and hold can help you knowwhen to buy and sell in Forex.
Market Hours
Market hours are a schedule by which market participants can buy and sell forex. While the market is open 24 hours a day on weekdays, it normally closes on weekends. But the weekend can be squeezed with a difference in the time zone.
For instance, the market opens on Sunday at 5 p.m. In New York City and closes on Friday at 5.00p. During this time, traders worldwide can execute the trade by buying and selling forex even though the conditions may vary.
While the market hours are different, it’s generally accepted that the above periods are important if you want to knowwhen to buy and sell in forex.
Forex Trading Sessions
Just because you can buy or sell forex at any hour doesn’t mean you should. The best time is, therefore, when the market is active with lots of positions to create a large volume of sales. Theforex marketcan be divided intofour different sessions,namely;
The best time to trade is during the weekdays when at least one session is open. Although there are periods when the market experiences downtime and uptime, it’s advisable to avoid trading when only one trading session is open.
The number of those buying and selling currencies significantly increases when the sessions overlap.
Currency Pair Considerations
When determining the optimal time to buy and sell forex, it is crucial to consider the specific currency pairs you are trading. Every currency pair has unique characteristics; understanding these nuances can enhance your decision-making process.
Major Pairs
The major currency pairs are the most traded and liquid, including EUR/USD, GBP/USD, USD/JPY, and USD/CHF. These pairs are typically best traded during their respective countries’ trading sessions (e.g., EUR/USD when Europe is open for business).
Commodity Currencies
The Canadian (CAD), Australian (AUD) and New Zealand (NZD) dollars are often referred to as commodity currencies because their economies heavily rely on the export of natural resources. The optimal time to trade these currencies is typically during their respective countries’ trading sessions or when the U.S. market is active, as U.S. economic data and monetary policy heavily influence commodity prices.
Emerging Market Currencies
Trading emerging market currencies presents unique challenges and rewards. Due to factors such as political instability and economic vulnerability, these currencies can experience greater volatility. However, they may also offer higher potential returns. When trading emerging market currencies such as the Brazilian real (BRL) or Turkish lira (TRY), it is crucial to consider local market hours and global economic events that may impact currency movements.
Best Times to Trade Forex
The best time to trade forex depends on three primary factors: trading volume, volatility, and overlaps between major financial centres.
Trading Volume
Forex trading volume largely depends on financial centres' opening and closing hours worldwide. The highest trading volume typically occurs during the London and New York sessions. Consequently, the best time to trade pairs involving the British pound (GBP), Euro (EUR), and U.S. dollar (USD) is during these sessions, usually between 3 am to 4 pm EST.
Volatility
Forex market volatility refers to the rate at which the value of currencies fluctuates. High volatility provides more opportunities for traders to make a profit but also increases risk. The most volatile time in the market is when the London and New York sessions overlap (from 8 am to 12 pm EST). This overlap period is characterized by high trading volume and frequent price movement, making it an ideal time for traders to get active.
Overlap Between Major Financial Centers
As mentioned, the overlap between major financial centres presents lucrative trading opportunities. The largest overlap is between the London and New York sessions, but overlaps between the Sydney-Tokyo and Tokyo-London sessions can also provide valuable trading opportunities.
Economic Data Releases
One of the most important parts of fundamental analysis is to trade usingeconomic data releases. Also known as news trading, this type ensures everyone has a level playing ground in the forex market. Each data released also has a set of times that can help you knowwhen to buy and sell in forex.
Since everyone is trying to outwit the other at this time, the market can suddenly become volatile. With several economic data releases daily, every country releases its data based on aspects such as retail sales, unemployment, trade balance, GPD and more. However, all this data doesn’t mean it’s safe to trade.
Instead of using this data blindly, you must filter thenews releasesand the expected impact to avoid any risk. You can also use the calendar to get information about important news events and economic data reports. The best thing is to ensure that you only consider what’s most relevant to you.
Relevant Factors
After developing a good knowledge of the forex market, it’s important to understand theright toolsand the relevant factors affecting trade. Here are some of the factors that affect trading timing;
Policies
Banking trade, government, and economic policies typically affect trading timing. For instance, daily trade is likely to increase when interest rates reduce. Therefore, important to keep abreast with economic policies and other relevant news.
Analysts
While company news plays an important role when it comes towhen to buy and sell in forex, there are key analysts whom you need to watch. Buying is likely to increase if an analyst speculates that certain companies or competitors are doing well. Once they evaluate a company or industry’s performance, they can help you decide on what to trade on that day.
Social Media and News Trends
Social media and news trends also significantly influence buying and selling forex. While content creators constantly place information, finance journalists share speculations about market movements and companies’ performances. To trade accordingly, you need to follow these trends.
Demand and Supply
This concept means that when the demand for a certain stock is high, the supply tends to be low; hence it’s likely to trade at a higher price. This is an important factor as most traders will likely sell early and push the prices down.
The Opening Hour
Since many things happen during the opening hour of trading, the first hour is usually very critical as it’s likely to affect how trading and allows you to knowwhen to buy and sell in forex.
Stock Liquidity
When there’s higher liquidity, there are higher chances of buyer positions. But if the prices move down, most traders tend to short-sell and make a profit.
Future Data
Future data is crucial, especially if you want to track daily trades. Since this data is gathered from trades before the market opens, it can give you a good indication of the market's movement.
Mid-dayTrading
Mid-day trading occurs when the opening has ended and the market has already settled. During this time, most traders buy the stock at lower prices, affecting their daily trades.
Trading Strategies
A trading strategy is a well-considered trading plan that outlines the risk tolerance, objectives, tax implications and trading time horizon. As a trader, you must research the best practices and ideas before adopting them. Once you execute a strategy, you’ll want to monitor and manage it by closing as soon as possible. Since there are many trading strategies, you must decide which strategy works best for you.
Technical Analysis
Technical analysisis where traders evaluate or study prices by looking at the historical movement to determine the trading condition. This analysis is based on the fact that all current market information is depicted on the price. This means that all known fundamental information depends on the current market price.
Based on the chaotic behaviour of the market, traders believe that predicting the prices of currencies and stocks is still being determined. So, it’s all about looking at the possibilities and trading only when the odds favour you. One of the ways of looking at this is focusing on the market while determining the risk-reward ratio.
Widely used to determine the long-term trend, this scope of analysis can help traders knowwhen to buy and sell in forex. The main assumptions of technical analysis are;
Advantages
Limitations
Fundamental Analysis
Fundamental analysis refers to evaluating the value of assets such as market indexes, stocks or currency concerning their growth potential. This analysis aims to ascertain its value so you can understand the direction of trade and determinewhen to buy and sell in forex. The main assumptions of fundamental analysis are;
Forex traderscan use fundamental analysis to evaluate stocks, assets, commodities and even bonds. For example, you can use figures released by the central bank, insights into a country’s economy, or just focus on a company’s earnings.
Typically, it’s a way of looking at forex by analysing the social, economic and political forces affecting the currency market. Since the hardest part is evaluating all the factors affecting demand and supply, you must understand why and how certain events affect the monetary policy, ultimately affecting the currency's demand level.
Advantages
Limitations
Newer political, economic, political, and legislative changes may affect the markets.
Market Analysis
As an online forex trader, it’s important to have a concrete approach to help you make the right decisions and trade. So, you need to understand different strategies and their strengths and weaknesses. Deciding which analysis to use is crucial, especially if you want to knowwhen to buy and sell in forex.
Besides the fundamental, technical and sentiment analysis, you can use global economic events, central bank policies, and political developments to determinewhen to buy and sell in forex.
Global Economic Events
Since forex is a global financial market, buyers and sellers buy and sell currencies worldwide. The fact that it’s worldwide means these events play a great role. While traders don’t have to focus on popular currencies, they offer a good place to start.
The value of these currencies is influenced by political developments, economic events, and market sentiment that also affectwhen to buy and sell in forex.
Indicators such as employment data, gross domestic product (GDP), and inflation rates can significantly affect the currencies. For instance, a strong GDP may boost the currency's value, while a weak one may reduce it.
Political eventscan also affect the forex market either negatively or positively. For instance, changes in international relations and government policies can impact a country's attractiveness and stability, which can, in turn, affect the currency's value.
In addition, market sentiment can play a role inforeign exchange. When traders look at certain currencies positively, demand and appreciation are likely to increase. Conversely, when they have a negative outlook, their demand will likely decrease, which can lead to depreciation and affectwhen to buy and sell in forex.
It’s, therefore, important to stay informed about these events and how they affect the forex market. Understanding these factors allows you to manage your risks by making more informed trading decisions. You can subscribe to economic calendars and follow financial news outlets to remain informed.
Central Bank Policies
If one factor affects forex trade and determineswhen to buy and sell in forex,then it’s the central bank policies. This means you must always know the central bank interest rates, the trends and how they will likely be impacted soon. Also, you must understand the difference between the currencies and how the market reacts to them.
While traders with ashort-term trading perspective react swiftly to the events, those with a long-term perspective may benefit from a carry-trade strategy. The idea is tosell a currencywith a low-interest rate and invest in one with a high-interest currency. This strategy works well, especially when the currency you are buying appreciates. Overall, any changes in the interest rates may affect forex trading andwhen to buy and sell in forex.
Types of Monetary Policies
A contractionary policy is where the central bank reduces the money it supplies or raises the interest rates. This makes borrowing money more expensive, thus reducing both expenditure and investment.
Expansionary policy– in this policy, the central bank increases the money supply while reducing the interest rates. Consequently, borrowing money becomes less expensive, thus leading to increased expenditure and investment.
Political Developments
Like central bank policies, political developments are likely to influence forex trade by instantly changing the value of the currencies. This is because they are long-drawn, largely unpredictable and involve several countries.
But what factors affect the currency rates?
Political Stability– a stable country is likely to be attractive to foreign investors, which can positively affect the currency rates. On the other hand, an unstable country is usually less attractive to investors and affectswhen to buy and sell in forex.
Elections– while elections occur in virtually every country, they can hugely affect the currency value as they are usually perceived as a sign of impending instability.This is especially true when they are tightly contested.
Government debt–while a huge amount of spending by the government is necessary to spur the economy, a large debt can easily deter investors. If a country gets itself into huge debt without a plan, it’s likely to affect the value of the currency and subsequently impact the forex trade.
Trade terms-terms of trade are the relationship between import costs and export prices based on the country’s balance of payments and the country’s current account.
Risk Management
Although the forex market has many opportunities, it also has many risks. Thankfully, risk management techniques offer a set of measures you can implement to ensure that any negative effect is manageable.
An effective risk management strategy requires proper planning and execution so you can knowwhen to buy and sell in forex. You also need to apply techniques and tools to prevent you from losing money when trading forex.
Setting Stop-Loss Orders
A stop-loss order is an order by traders to lock in profits and limit any loss in their existing position. It’s typically stopping trading to protect their trade from unprecedented market movements. For instance, if you enter a certain position market with the hope that the currency will appreciate but it depreciates, you can put this order to prevent any further losses.
While most traders associate this with a long position, it can also help in a short-term position. Since stop losses are not guaranteed, it’s best to set them at a level such that you don’t lose more than 2% of your trading balance. Once you set this, you should not increase the loss margin. This way, you’ll knowwhen to buy and sell in forex.
Diversifying Portfolios
A tried and tested risk management strategy, diversifying portfolio refers to having a diverse range of investments so that if one drops, it can be compensated by the others. One way to do this is to trade more than one currency pair. The unwritten rule is that the greater the number of pairs used, the higher the probability of beating the benchmark.
You can also diversify your portfolio by using a few well-selected currency pairs. The portfolio must include enough unrelated currency pairs. It’s also important to consider the so-called multiple risks, all sources of forex market risks.
Controlling Position Sizes
Position sizes refer to the number of units you must trade to achieve your desired level. Controlling position sizes is, therefore, a technique that investors use to determine the number of units they can buy to limit the risks and maximise returns.
While this concept is important in forex trade, it’s mostly associated with currency trading. Before you can use appropriate position sizing, you must determine your account risk. As a rule of the thump, you should not risk more than 2% of your investment capital.
For instance, if you have over a $25,000 account and decide to set your maximum risk at 2%, you should not risk more than $500 per trade. This means that even if you lose ten consecutive trades in a row, you’ve only lost 20% of your investment capital.
Market Trends
Market trends can be described as the anticipated price movements over time. Since markets can take upward, downward or sideways trends, traders often use them to make movements more predictable. Market trend analysis is crucial as it provides critical information to determinewhen to buy and sell in forex.
Currency Pair Correlations
Currency pair correlations show the link between two separateforex pairsand hence can allow you to realize more profit. For instance, if you are certain that one currency pair will move alongside the other, you can choose to maximise your profit or shield your current exposure to avoid making losses.
The currency pairs, which include the US dollar, are usually more active between 12 pm to 9 pm (UK time), while pairs with the pound are likely to be active between 8 am and 4 pm (UK time) when the British and European markets are open.
Unlike theJapanese Yen (JPY), the most highly correlatedcurrency pairsare GBP/USDand EUR/USD because they are close to the relationship between theBritish poundand theEuro.
Market Volatility
Market Volatility is used to estimate the difference between the opening and closing prices of currency over time. A currency pair that fluctuates between 5-10 pips is usually less volatile than one between 50-100 pips.
Unlike haven currencies like the dollar and the pound, exotic currency pairs and emerging markets tend to be more volatile. So, based on your strategy and trading style, you can find a currency pair that suits your need and subsequently determinewhen to buy and sell in forex.
Volatility is important because it’s one of the most intrinsic parts of the forex market. Without volatility, there is no price movement, which makes it impossible to have any trading activity. A certain level of volatility is also needed for the markets to operate. But when volatility is too high, trading can be a bit tricky. You, therefore, need to be aware of the most volatile currencies, especially when it’s rising.
Key Metrics
Trading metrics refer to statistics used to analyze trading performance. Like you can evaluate how fast a car is or how many people it can transport, key metrics will show you different aspects of trading, including how your strategy performs and whether it will survive in different market conditions.
Once you understand your performance better, you can gain confidence and trade, knowing that it will be profitable in the long run. This is very important if you want to knowwhen to buy and sell in forex.
Top 6 Key Metrics
Profit factor– the profit factor refers to the amount of money made compared to the amount lost. Simply put, it determines whether trading is profitable or not.
Broken down by session– this refers to breaking down your trades into sessions to determine when you can trade and make the maximum profit.
The average winner is the total amount of money you can win per trade. It’s usually calculated by dividing the total amount of profit made by the total number of trades.
Average Loser– this is the average amount of loss per trade. It’s calculated by dividing the total amount of money lost by the total number of trades.
Holding time is the average amount of time you spend on trade. While it might be less relevant if you are a day trader, if you are a swing trader, it’s a very important factor.
Expectation– the expectation is the average amount of money you can expect per trade. It’s calculated by dividing the expected value by the loss.
Conclusion
Most beginner forex traders have the following questions about when to buy and sell in forex to make a profit:When should I buy and sell forex? How to know when to buy and sell forex? Forex trading when to buy or sell? Understanding when to buy and sell in forex?
So when is the best time to buy and sell forex?
While this depends on an individual trader, it’s important to cinder different strategies and price movements. Price movements of a currency pair. You should also consider factors such as market volatility, central bank policies and political developments to help you knowwhen to buy and sell in forex. Remember, the best time to buy and sell currency is when the market is most active.
Disclaimer: This information does not represent trading advice.
