Tokyo Session – Forex Academy

Introduction

The Forex market is open 24 hours daily and is traded from Monday to Friday. This feature makes it feasible for traders all around the world to trade it. However, it is not quite ideal to trade anytime in Forex. There are specific times of the day and week that offer greater liquidity. These are the times when the professional traders step into the market as well. So, let’s dive right into the topic.

The preferable time to enter the forex market

Liquidity and volatility are the two vital factors a trader must consider before choosing the best time to trade. Because, with the absence of liquidity and volatility, it is not possible to grab big moves in the market. Hence, one must look out for the times when there is a high volume of trading happening in Forex.

As far as liquidity is concerned, liquidity is excellent (as well as volatility) when two sessions overlap. During these times, the volume of orders double, making significant movements on major pairs. Hence, getting in-depth knowledge about how pairs behave during session overlaps is very important.

The overlapping sessions

The Tokyo-London Overlap

During the Asian session, there is not much movement in the market. But, when the London market opens, the Tokyo markets are still running. Hence the volume during the overlap time segment increases as both the markets are actively traded. Having said that, most of the volume comes from London, which ends up suppressing the Tokyo market. Hence, trading this overlap session is highly recommended.

The London-New York session

The London market and the New York market alone bring in considerable volatility. And when both these markets combine, the liquidity rises significantly. Hence, this becomes the ideal time to trade the forex market. Moreover, due to the high liquidity, the spreads during this time are incredibly tight.

Now that we’re clear with the preferable time to trade the markets let us discuss the preferred weekdays to engage in trading.

What are the days of the week best to trade?

Let us answer this question by considering the average pip movement of currencies pairs on all trading days of the week.

From the above table, we can ascertain that the pip movement on Monday is lesser when compared from Tuesday – Friday. Also, on Friday, once the afternoon sets off, the liquidity reduces considerably. Hence, to get the best from the Forex pairs, it is best to work during the middle of the week and near the time of the market openings.

This brings us to the end of this lesson. To get a recap of the above lesson, you can take up the quiz given below.

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Introduction

Japan’s capital Tokyo, is the most majorly traded market in the Asian continent. That is, in Asia, the highest volume comes from the Tokyo market. In fact, it is considered the financial capital of Asia. Moreover, it is the third-largest trading center in the world.

The Tokyo session, also referred to as the Asia session, opens at 8:00 PM EST and is traded until 5:00 AM EST. In terms of Japan’s local time, the trading happens between 9:00 AM to 6:00 PM. As ‘Yen’ is the currency of Japan, 16.50% of all the Yen transactions take place during this time. And as far as all currency transactions are concerned, the value lies at 21%.

The one that matters the most during any session is the pip movement in different pairs. Below is a table which represents the average pip movement for some of the major currency pair.

Now, the average of the above currency pairs turns out to be around 53 pips. This number is less when compared to the New York session and the London session.

Some facts about trading the Tokyo session

During this session, the market is seen to fade away its momentum. That is, the market is seen to be quite flat. In technical terms, the market usually goes through a consolidation state. This session might not be the ideal session for the ones looking for large pip movement. However, this session can be great for scalpers.

Tokyo market typically is known to correct the overbuying and selling in the New York session. The market makes drastic moves during the NY session and comes to slows down its pace during the Tokyo session. Therefore, the liquidity during this session is quite feeble.

It is not just the central banks and hedge funds that move the market. Since Japan is the largest exporter in the world, a large number of transactions come from the exporters as well.

Also, the Bank of Japan is an active participant in the forex market during the Tokyo session. This is because it intervenes the curb appreciation in the Yen regularly.

Which currency pairs should you focus on?

The market conditions and situations tend to change from time to time, so it becomes uncertain to predict the exact movement of pairs. However, if we were to consider the average rates, we can keep an eye on the news from countries like Australia, New Zealand, China, and Japan. The news from these countries comes during the Tokyo session or just before its open. And the news usually pumps up the volatility and liquidity of the market. Hence, one can have a focus on AUD, NZD, and JPY pairs.

When the Tokyo session comes to an end, the London markets open, which causes overlap between the two sessions. So, to be part of the significant movements, keep an eye on GBP, EUR, and CHF along with AUD, NZD, JPY, and USD.

This is a brief review of the Tokyo session. We shall discuss the other sessions as well in the upcoming lessons. Take the below quiz to know if you have learned the concepts right.

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