eToro Education: How Do Trading Sessions Affect My Bottom Line?

A Quick Look at the American Session

The American trading session is the most active and volatile session because important economic data is released usually at the beginning of the session. Forex trading is one of the most popular forms of investments that investors engage in these days as the forex market is the most liquid market in the world. One of the main reasons why people love trading currencies is because it permits them to trade at any time of the day or night.

It is a 24 hour market. There are basically three time zones which a trader can trade in. These are the European time zone (London), the North American time zone (New York) and the Asian time zone (Tokyo). The American session trades the main currency pairs that are traded

Trading the American Session:

It is a mistake to assume that since the Forex market is open 24 hours a day during the week that traders trade at any time of the day. The reason most traders don’t is that traders have particular markets they feel most happy trading in because of the types of trading opportunities that each time zone offers. This means that traders have to study the market carefully so they understand when there is going to be a lot of activity or when the market is going to be slow.

This is why knowing the characteristics and personality of each of the trading sessions is important. The American session has the biggest activity of all the sessions and therefore presents traders with a lot more options to generate profits. The more activity and volatile a market is, the more opportunities for short term profits.

Another factor that makes the American session the most energetic market is that it begins when the European traders come back from lunch. That is the period of high liquidity and high activity, remember that 80% of forex trades involve the dollar as half of the currency pair. In fact if you study a typical trading day – typical trading days occur on Tuesdays, Wednesdays and Thursdays as Mondays and Fridays tend to be difficult days to trade in – the most currency movement takes place between 10:30 and 11:30 New York time. The EUR/USD chart below shows within the circles the movement of this currency pair between 10.30 am and 11.30 am EST.

Also the market volatility during the American session increases once the European session closes as the volumes drop quite considerably. Another factor which makes the American session very active is that most of the important economic news events and numbers are published during the American session.

The American session characteristically starts with economic releases such as the US home sales, trade balance (or deficit rather), CPI, PPI and so on. The biggest economic event takes place on the 1st Friday of every month. This event is the publication of the non-farm payroll or the NFP. The minute the number is released, the market usually moves at least 80 pips within 5 minutes. It’s a quite strenuous time for traders at that time.

In New York City, the markets open at around 14:00 GMT and closes at 22:00 GMT. In Chicago, the Forex markets open at 15:00 GMT and then close at 23:00 GMT. All the major currency pairs including the commodity pairs are traded in the New York session. These include the EUR/USD, GBP/USD, USD/CHF, USD/JPY, USD/CAD, AUD/USD and NZD/USD.