Night trading on Forex
Usually many traders are active in the currency market during the daytime, during European and American trading sessions. The market at this time is active and there is an opportunity to make good profit on the price fluctuations.
But at the same time there are traders who believe that night trading on Forex can be no less profitable than day trading.
Let us try to find out if this is true in reality.
Time of night trading
Let's first define what kind of trading can be considered night trading. It is generally considered that night trading starts at closing of the American trading session, and ends at opening of the European session. That is, the period from 22-00 GMT+1 (the closing of the New York Stock Exchange) to 8-00 GMT+1 the next day (the opening of the Stock Exchange in London) can be considered a time of overnight trade.
Peculiarities of the night trading on Forex market
The reality is that when American and European exchanges close, market activity decreases rapidly. And there is nothing strange about it. When the hectic financial activity in US exchanges comes to a close, it is late evening in Europe and all financial institutions are closed. The Asian and Pacific commodity exchanges do not have the potential to have a significant impact on the behaviour of the underlying currencies. Usually, currency trading on these exchanges is centred around the yen, the Australian dollar and the New Zealand dollar.
- Most currency pairs become "sluggish" overnight. The corridor in which their quotes vary is usually less than 20-40 pips.
- Given the weak volatility, currency pairs are usually unable to cross key support/resistance levels. The price moves between these levels, alternately pushing away from them.
- At around 3-00 - 4-00 GMT+1, the market may see a surge in quotations for pairs that include the Japanese Yen. This is due to the fact that at this time large financial companies and banks of Japan enter the market.
- The news flow at night time is getting weaker and its influence on price movements of major currencies is insignificant. Only the Japanese, Australian and New Zealand currencies are not affected by this rule. Usually all the major news about these assets is released at night. And if news about the interest rate is released, we can expect to see a rapid price jump in pairs, which include the currency touched by the news.
What is the best strategy for overnight trading?
When choosing a trading strategy for the night time trading, we should consider the specifics of the market behavior. In particular, scalping may give good results.
You may also consider a narrow range of price movements so we can easily identify thresholds between which price quotes change and use a channel (range) forex strategy. Once you have determined the location of the levels, you can buy the asset when the price reaches the lower boundary, close the trade and sell the asset when the price reaches the upper boundary of the range. Low market volatility will allow you to trade this strategy without much risk, and low probability of breaking through support/resistance levels will allow you to make a profit in most open trades.
Advantages of night trading on Forex
- The main advantage of this type of trading is minimal risk. Thanks to the measured behavior of the market the risk component is virtually reduced to zero.
- Technical analysis during the night time is much easier than during the day. False signals and breakouts are extremely rare during such trading.
- Night trading is suitable for those who by virtue of various circumstances can not trade during the daytime.
- Psychological load on the trader in the period of quiet trading is much less, and consequently the effectiveness of his trading activity will be higher.
- At night a broker's server experiences less load than during the day. To some extent, it minimizes the risk of slippage which ultimately affects the quality of trading.
Disadvantages of night trading
There are not so many disadvantages of night trading, but still they need to be mentioned.
- The lack of proper sleep is the main disadvantage of night trading.
- Accumulated fatigue can lead to inattentiveness which prevents you from getting the best result in trading.
To sum it up, it should be noted that despite low market volatility during the night time, it is possible to trade profitably during this time. If you do it professionally, you can get as good results as during daytime trading. The only thing is that you have to correctly calculate your forces and not to make a lot of mistakes because of fatigue when starting this type of trading.