Just because the forex market is open 24-hours a day, doesn't mean every one of those hours is worth trading. The GBP/USD, with a cross rate of around 1.35 on Jan. 26, 2022, has certain hours which make more sense for day trading because there is enough volatility to generate profits over and above the cost of the spread and/or commission. To be efficient and capture the largest moves of the day, day traders hone in even further, only trading during specific hours of the day.
Day Trading Sessions and Impact on Volatility
Due to global time zone differences, during the week there is always a market open for business somewhere. This is what makes forex trading available 24 hours a day. Not all markets actively trade all forex pairs, though. Therefore, different forex pairs are actively traded at different times of the day.
When London (and Europe) are open for business, pairs that involve the Euro (EUR), British Pound (GBP), and Swiss Franc (CHF) are more actively traded.
When New York (U.S. and Canada) are open for business, pairs that involve the U.S. dollar (USD) and Canadian dollar (CAD) are more active.
If trading the GBP/USD, the times that are likely to be most active for the pair, on average, will be when London and New York are open, according to the times on the attached chart.
These times are GMT. To convert to your own time zone (or your forex broker's time zone), use the forex market hours tool available here: http://www.forexmarkethours.com/markethours.php.
Acceptable Times to Day Trade GBP/USD
The hourly volatility chart shows how many pips the GBP/USD moves each hour of the day. Times are in GMT.
There is an increase in the amount of movement starting at 06:00, which continues through to 16:00. After this, movement each hour begins to taper off, so there are likely to be fewer big price moves day traders can participate in.
Day traders should ideally trade between 06:00 and 16:00 GMT. Trading outside of these hours the pip movement may not be large enough to compensate for the spread and/or commissions.
Volatility changes over time. For example, the daily average volatility at the time of writing is 78 pips per day. The daily average movement could increase to 100 pip per day, which means each hour is likely to see slightly higher pip movement.
Which hours are most volatile generally do not change, though. 06:00 to 16:00 GMT will continue to be the most acceptable time to day trade, regardless of whether daily volatility increases or decreases.
As a general rule, only day trade during hours where the price is moving at least 15 pips or more (preferably more).
Also consider news in the equity markets and hours in which equities, options, and futures trade. while these exchanges are open, key economic data is often released that could have impacts on the GBP/USD pair.
It helps to research issues ahead and attempt to anticipate potential market movements that could be triggered by favorable or unfavorable economic data released in either Great Britain or the United States.
Ideal Times to Day Trade GBP/USD
06:00 to 16:00 is an acceptable time to day trade the GBP/USD. There is an adequate movement to potentially extract a profit and cover spread and commission costs.
If you are able to, though, day trade the GBP/USD only between 08:00 and 10:00, and/or 12:00 and 15:00 GMT.
This will maximize efficiency. During these periods 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.
Also, London and New York are both open during these time frames. That means a lot of volume coming in from two major markets so spreads are typically the tightest during this time.
Best Time to Day Trade the GBP/USD
Not everyone is a full-time day trader and therefore can't choose when they trade. If you can't trade at the ideal times of 08:00 to 10:00, or 12:00 to 15:00 GMT, then day trade the GBP/USD at some other point between 06:00 and 16:00 GMT. Trading during these times maximizes profit potential due to the size of the moves, and spreads are typically lower during these times as well.
Useful Tools to Trade Forex
Many tools and programs exist to help you excel at trading forex, with a few standouts that can help you increase your performance and productivity in a variety of ways.
A free tool called the Forex Calendar helps you stay on top of fundamental updates taking place in the forex market. This includes dates of economic news releases, with their previous and expected values.
A plug-in for the MetaTrader 4 platform called Autochartist bills itself as the most advanced chart pattern recognition software. It's also available as a web-based app, and the software makes it easier to spot trends and patterns such as shoulders and rising wedges.
This software works especially well for beginning traders as it helps you more quickly and easily recognize chart patterns with its graphical analysis.
Frequently Asked Questions (FAQs)
How do you start trading forex?
To start trading forex, you'll need to open an account with a forex broker. Forex brokers are easy to find all around the world, but make sure to research the broker before opening an account. As you consider your options, compare the brokers' capital requirements, fees, and leverage amounts. If you're new to trading, you might want to look for a broker that offers a demo account you can practice with until you better hone your trading strategies.
How does forex trading work?
In the most basic sense, forex trading simply involves trading one currency for another. However, the values of currencies only fluctuate a small amount each day, and many traders don't have enough capital to profit from these small movements. That's why leverage is so important to forex traders. By borrowing money to trade in large lot sizes, traders can profit from what would otherwise be insignificant price movements.