The allure of forex day trading is that you can trade 24 hours a day. Unfortunately, that doesn't mean you should. Day traders should only trade a forex pair when it's active and there's lots of volume and transactions occurring. The EUR/USD has certain hours that are acceptable for day trading, because there is enough volatility to generate profits, which are likely higher than the cost of the spread or commission. To be efficient and capture the largest moves of the day, day traders hone in even further, often day trading only during a specific three- to four-hour window.
The Impact on EUR/USD Volatility
The forex market operates 24 hours a day during the week, because there's always a global market open somewhere due to time zone differences. However, not every global market actively trades every currency, so different forex pairs are actively traded at different times of the day.
When Europe is open for business, pairs that involve the euro (EUR) or British pound (GBP) are more actively traded. When the U.S. and Canada are open for business, pairs that involve the U.S. dollar (USD) and Canadian dollar (CAD) are more active.
If day trading the EUR/USD, the times that are likely to be most active for the pair, on average, will be when exchanges in London and New York are open. Those markets are open between 0800 and 2200 Greenwich Mean Time (GMT). To see major market hours in your own timezone, or your broker's (charts) time zone, use the forex market hours tools.
Acceptable Times to Day Trade EUR/USD
The hourly volatility chart shows how many pips the EUR/USD moves each hour of the day (times are in GMT). There is a significant increase in the amount of movement starting at 0700, which continues through to 2000. After this, movement each hour begins to taper off, so there are likely to be fewer big price moves that day traders can participate in.
Day traders should ideally trade between 0700 and 2000 GMT. Trading outside of these hours, the pip movement may not be large enough to compensate for the spread or commissions.
Volatility changes over time, but the most volatile hours generally do not change too much. 0700 to 2000 GMT will continue to be the most acceptable time to day trade, regardless of whether daily volatility increases or decreases. Note that daylight savings time may affect trading hours in your area.
Ideal Times to Day Trade EUR/USD
0700 to 2000 GMT are acceptable hours for day trading the EUR/USD because there is an adequate movement to extract a profit and cover spread and commission costs. You ideally want to day trade the EUR/USD between 1300 and 1600 GMT to maximize efficiency. During this period, you'll see the biggest moves of the day, which means greater profit potential, and the spread and commissions will have the least impact relative to potential profit.
London and New York are both open during this three-hour window. That means a lot of volume coming in from two major markets, so spreads are typically tightest during this time.
Frequently Asked Questions (FAQs)
How many pips does EUR/USD move per day?
Volatility doesn't just change throughout the day, it also fluctuates on longer timelines. To get a sense of the daily volatility, you can use indicators like the average true range (ATR) that gauge volatility based on recent periods.
What will happen to EUR/USD if there's a Fed rate hike?
When the Federal Reserve raises interest rates, it means that investors can get higher interest payments on U.S. dollar deposits. Investors and traders will view the U.S. dollar as more valuable relative to other currencies that haven't increased rates. In other words, the euro will lose value compared to the dollar.