Market time zones allow traders to focus on the most volatile sessions. Meanwhile, some might prefer the less volatile sessions to find the best entries. Therefore, time zones can be quite beneficial to stock traders. Different economic regions have specific times when they open their markets. The major trading time zones include New York, London, Tokyo, and Sydney. Regardless of where you live, you can participate in stock trading during these time zones.
TRADING TIME ZONES
The four major time zones have the most trading activity in the world. Although there are minor ones, most traders use these major ones. Markets are open at different times across the world.
The London session is also known as the European session. It ranges between 7.00 am and 4.00 pm UTC. During this time, markets in France, Germany, and London are open. Therefore, traders can take part in these stock markets.
The New York session is also known as the US session and runs from 1.00 pm to 10.00 pm UTC. During this period, stock markets in the US are open for trading.
The Sydney session runs from 10.00 pm to 6.00 am UTC. During this time, you can trade stock markets in the Pacific region, like Australia.
The Tokyo session runs from 12.00 am to 9.00 am UTC. During this time, stock markets in Asia are open to trading.
Markets session time
You can check the time on your trading platform to know which market sessions are open. These time zones differ in terms of volatility, trading volumes and liquidity. The US and London sessions focus on markets in major economies, meaning high volatility and liquidity. On the other hand, the Sydney and Tokyo sessions are less volatile in comparison. High volatility comes with added risk. Therefore, traders should pick time zones depending on the risk tolerance. Moreover, you can pick the most suitable timezone depending on where you live and when you are free to trade.
Stock traders who focus on leveraging these market sessions can decide to focus on one time zone. However, they can also trade in multiple time zones when they overlap.
MARKET OVERLAPS
Market overlaps create some of the best times to trade because increased market activity boosts volatility. Whether you are a swing trader or a trend trader, you need the market to move in order to make money. Most markets move a lot when trading activity is high.
The most volatile overlap is that between the London and New York sessions. London and New York are both big trading hubs. Therefore, when these two sessions overlap, stock prices make big moves. This happens because European traders might wait to trade US stocks when the New York session starts.
Market overlap
The chart above shows a spike in volatility for the Tesla stock when the New York session overlaps the London session.
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TIMEZONE TRADING STRATEGIES
The different major time zones can be great tools for creating a trading strategy.
LOW VOLATILITY ENTRIES
For instance, you can use the less volatile sessions to find entry opportunities. At this time, some calm allows you to analyse price action and enter the market easily. From here, you can wait for more markets to open, allowing the price to move amid increased volatility. After that, close your trades and wait for your next trading session. Low volatility can also come at the end of a trading session.
Low volatility
The chart above shows the Tesla stock in thin trading at the end of the New York session. However, this changes when a new session begins.
BREAKOUT TRADING
Breakout traders can use time zones to find the best trading opportunities. For instance, if you are trading the London session, you can focus your trades on the first hour after the market opens. At this time, there is usually a lot of interest in trading. However, it slowly fades as the session continues.
Therefore, the best time to find breakout trades is at the market open. Analyse price action before the start of the session to find the most recent trading range. Plot the appropriate support and resistance levels and wait for the price to break above the resistance or below the support. This creates a good entry opportunity. Therefore, this strategy will focus on catching trades when the session starts.
Breakout trade
The chart above shows a bearish breakout for the Tesla stock at the start of the New York session. Furthermore, you can wait for a session overlap for higher volatility. A European stock trader can wait for the New York session to overlap with the London session before finding breakout trades.
MOMENTUM TRADING
Momentum traders look for strong price moves that favour a specific direction. Most of these moves come during volatile trading sessions like New York and London, especially when they overlap. On the other hand, it will be harder to find such moves during the Tokyo or Sydney sessions.
The chart above shows a price spike immediately after the New York session overlaps the London session.
RESPONSE TO GLOBAL NEWS
The major time zones are also important because they allow traders to monitor and respond to global news and events. Economic and political events in the US can impact European stock markets. The reverse is also true.
For instance, with Trump as the new US president, US policies might change, impacting the global economy. Tariffs on imported goods from the Eurozone will hurt businesses in the bloc. Therefore, stock prices might plunge.
However, stock traders must wait for the US session to stay current with these events. Additionally, economic reports from China during the Asian session can impact stock markets in other regions like the US. Therefore, it is important to know when these markets are open.
FINAL THOUGHTS
Time zones play a significant role in stock trading. However, they are only one area of successful trading. Traders must also focus on refining their trading psychology, risk management and strategies.
Understanding the psychology of trading will ensure you stick to your strategy and bounce back after losing streaks. Psychology focuses on a trader’s mind, which should be disciplined and without emotions like greed and panic.
Meanwhile, risk management will ensure you do not blow your money when a trade goes south. Managing risk involves deciding how much you are willing to lose per trade. Moreover, you can add a risk-reward ratio that ensures you make profits at the end of the day. Proper risk management ensures long-term growth.
Finally, traders must focus on developing winning strategies. A good strategy clearly shows the conditions for entering or exiting a trade. All this, plus keeping an eye on the major time zones, will improve trading results.
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