Trading Sessions Defined by Forex Market Liquidity

Beginner Questions
1

Since I first began to learn about the forex market, I have understood trading sessions to be the times of day when various major trading centers are active. According to this view, it all starts in New Zealand, sometime in the early morning (New Zealand time), and ends in the U.S., sometime in the late afternoon (New York time). I’ve always looked at it this way, because that’s how it was taught to me 11 years ago.

I’m now throwing all that out.

The important thing about trading sessions is [I]not[/I] when the Sydney market overlaps the Tokyo market, or when the big banks open in Frankfurt, or when the stock exchange opens in London, or when the futures market opens in the U.S. I think we can forget about all of that, and we can forget about trying to define [I]normal business hours[/I] in the major trading centers.

What I’ve thought, and said on this forum, for years about [I]opening[/I] and [I]closing[/I] times in various forex markets has been, at best, only a rough approximation of what the market is actually doing. Individual forex markets — Asia, Europe, North America — don’t [I]open[/I] or [I]close,[/I] except over the weekend.

Instead, they ebb and flow, as they continue to operate 24 hours per day.

So, the way to define trading sessions is to chart this ebb and flow, and let the opening and closing times fall where they will, without regard to the business or cultural patterns of life in all the countries where forex trading is brisk.

How do we chart the ebb and flow of trading activity? I submit that [I]liquidity is the driver that makes everything happen in this market[/I] (or in any market), and there is a simple way to track liquidity. (More on this in post #3.) Furthermore, we can identify repeating patterns of rising and falling liquidity over the 24-hour trading day — and these patterns tell us how the market has [I]organized itself[/I] into trading sessions.

There are four of these liquidity-driven trading sessions in a typical trading day, beginning and ending at 5pm (New York time) each day, except Saturday. These trading sessions could simply be numbered from 1 through 4. But, they overlap the 3 trading sessions in a conventional Tokyo/London/New York trading-session system [I]closely enough[/I] that it’s convenient to use those labels.

Here are the four trading sessions which I believe best show how the market has organized itself:

[U]Session[/U]
[U]Tokyo time[/U]
[U]London time[/U]
[U]New York time[/U]


Tokyo Session
6am - 3pm
10pm - 7am
5pm - 2am


London Morning Session
3pm - 8pm
7am - 12pm
2am - 7am


London / New York Overlap Session
8pm - 1am
12pm - 5pm
7am - 12pm


New York Afternoon Session
1am - 6am
5pm - 10pm
12pm - 5pm

The table above shows current trading session times, corresponding to northern hemisphere summertime, when both London and New York are on Daylight Saving Time.

The next post will show the Trading Sessions on 2 charts: (1) a chart for northern hemisphere summer, corresponding to the times shown in the table above, and (2) a chart for northern hemisphere winter, with Tokyo times adjusted for the 1-hour shift in the start of the trading day at the end of Daylight Saving Time.

The third post in this thread will be a discussion of liquidity, price movement, and volume, as those metrics relate to constructing the Trading Session charts.

.

3 Likes
2

.

3

[B]Liquidity, Price Movement, and Trading Volume[/B]

It’s generally accepted that [I]resting orders[/I] (limit orders and stop orders) constitute [I]liquidity[/I] in the market. If you choose to enter or exit the market immediately (on a market order), that liquidity is available to fill your market order instantly. And the ability to transact market orders (get filled) immediately is not only demanded, but almost taken for granted, by traders. So, the presence of available liquidity is an important factor in deciding when to trade and what to trade.

Price seeks liquidity. Market-makers push prices up or down to capture the liquidity required to complete transactions. This price movement, in turn, attracts additional liquidity. So, a virtual cycle is set up in which liquidity generates price movement, and price movement generates liquidity. Speculators (ourselves included) seek profit opportunities amidst this price movement and liquidity.

The trading activity — which is attracted to periods of liquidity and price movement — manifests itself as (1) tick-volume (incremental price changes, up or down), and (2) true volume (measured in dollars, euro, sterling, etc.). And, as has been documented, tick-volume (which can be measured directly) and true volume (which cannot be measured directly) tend to move in tandem.

In other words, a graphical representation of [I]tick-volume[/I] (with absolute numbers attached to each period) is also a graphical representation of [I]true volume[/I] (without numbers).

Factoring volume together with price movement and liquidity creates a larger virtual cycle in which liquidity generates price movement, which in turn generates trading volume, which in turn generates liquidity. So, a graphical representation of tick-volume (in real terms) can now be interpreted as a graphical representation (in relative terms) of either true volume or liquidity.

If our common tick-volume charts are also depicting the rise and fall of liquidity over time, then a [I]typical[/I] tick-volume chart will show us the [I]typical[/I] rise and fall of liquidity over time. Our only task now is to identify a [I]typical[/I] tick-volume chart — that is, a tick-volume chart which depicts the [I]mean[/I] to which daily variations in tick-volume tend to [I]revert.[/I]

I have selected one such [I]typical[/I] tick-volume chart as the starting point for plotting trading sessions based on liquidity. I didn’t use any sort of rigorous mathematical technique for determining that daily variations in tick-volume tend to revert to this particular chart as their mean. Instead, I simply relied on what I’ve been observing during years of looking at charts. You might choose a different tick-volume chart to represent what’s typical, or average; but, I think that your choice would not be very different from mine.

[B]Liquidity and Trading Sessions[/B]

If periods of high liquidity are typically also periods of large price moves, and if we are seeking these periods as preferred times to trade, then we can use our tick-volume charts to point us to those periods. The “typical” tick-volume chart which I have used as the basis of my trading-session system clearly has four distinct time periods, representing four distinct waves of tick-volume, true volume, and liquidity. My system simply brackets and labels these four time periods.

The four time periods in my system resemble (roughly) the Tokyo, London, and New York sessions displayed in many other trading-session systems, with some key differences: (1) the Tokyo Session begins and ends at slightly different times, although the 9-hour duration of this session is fairly common, (2) the London and New York Sessions each begin an hour earlier than in most other systems, extending each of them to 10 hours, (3) the 10-hour London session is divided into the London Morning Session and the London/New York Overlap Session, each 5 hours in duration, and (4) the 10-hour New York session is divided into the London/New York Overlap Session and the New York Afternoon Session, each 5 hours in duration.

[B]Notes on the Trading Session Chart[/B]

The charts in post #2 were constructed on EUR/USD 30-minute tick-volume charts covering two periods: (1) from 5pm (NY time) on April 6, to 5pm (NY time) on April 7, 2016; and (2) from 5pm (NY time) on January 14, to 5pm (NY time) on January 15, 2016. These particular tick-volume charts were selected because they display a fairly typical pattern of tick-volume (and, thus, liquidity) over a 24-hour period.

Relying on liquidity to define the forex trading sessions produces a system which differs somewhat from everything else out there — including the 4-session system presented in the School of Pipsology. Accordingly, the system presented here may, or may not, appeal to you.

If it does appeal to you, it’s yours to do with as you see fit.

If it doesn’t appeal to you, that’s perfectly fine. You have other choices. In addition to the system presented in the [I]School,[/I] there are several other systems worthy of your consideration. In particular, the 3-session system presented by John Kicklighter from [I]DailyFX,[/I] is worth a look.

Your comments are welcome.

.

1 Like
4

Great posts Clint

5

Great post Clint. Appreciate it . it shows tick volume and price analysis is quite important. The only question is how one interpret if they decide to use tick volume in trading. Clint makes perfect sense. Liquidity is needed , tick volume as a way to see the insides.

6

Great post, Clint…
Amazing

7

[B]eddie, Joe,[/B] and [B]Francesco[/B] — thanks for the kind words, guys.

[B]Proof of Concept[/B]

If this way of delineating trading sessions has merit, it will prove its value in trading systems that utilize session highs and lows. If your trading methodology projects [I]previous-session highs and lows[/I] into the current session, in order to establish target price levels on which to make trading decisions, then I will be interested in hearing your evaluation of the sessions presented here, compared to what you are presently using.

[B]Daylight Saving Time[/B]

Another aspect that needs investigation is whether the time changes we all have to endure in the spring and fall distort the trading sessions presented here, and, if so, by how much. We won’t have to wait until fall to find out. Right now, we can simply scroll back a few weeks to a convenient tick-volume chart from some date prior to the DST changes which began in March, and then mark the four trading sessions based on either London or New York times. I’m guessing that the resulting chart will look essentially like the one in post #2, with one exception: the Tokyo times will all be shifted by one hour, because Japan does not observe DST. I’ll look into this, later today.

.

8

I don’t know if this is of any add-on value, but I’ll mention it anyway. I have never done this kind of analysis myself but my own trading style has homed in on the same results.

I am a boring, old-fashioned trader who still uses, and relies on, MA’s and hasn’t migrated to the “price action only” brigade. This means I rely on follow-through action after my trade entries, which in turn means I have to identify the most active trading periods (regardless of session).

Pure trading experience over the years has gradually shrunk my trading down to two sessions daily. I trade (London time) 7:00 - 11:00 and then 14:00 - 18:00 and ignore any other times. I usually also omit Mon’s and Fri’s unless there is something specific happening then.

This appears to match well with your data, which is very reassuring! :slight_smile: thanks for the great effort!

9

Hi client , I don’t exactly understand will all those terminologies. Could you explain in a layman’s terms. I just started a month ago. I have been trading based on the spread of price confirming to the volume. I based it on Anna coulding, vsa, Jesse Livermore and wyckoff theory. I usually trade on the first hour of Japan open. For about 5 hours. What I do always notice is, Asian session tend to have lower overall volume when compared to London open. But when the volume do spike up considerably on Asian open. A trend usually develops. I trade mostly within Asian open only. By scrolling back in my 5 min tf. I see a similar pattern for volume tick. another thing I do observe is.

Not exactly sure what you are asking Clint. But the chart you posted . is exactly what appears in my 5min tf. Is similar generally.

10

One more thing, I did have a quick glanced at my 5min tf. I notice something. Whenever my tick pattern confirms to your chart . it trends . I will need to check it out more and confirm with you soon. You have given me an idea :). Thanks

11

Hello, Manxx

You are definitely trading in the “hot zones” of the trading day.

I marked up a chart to show your preferred trading periods —

12

…But that is why they [U][I][B]are [/B][/I][/U]the hot zones! :smiley: :smiley: (don’t I wish!)

13

Wow. I envy your power! — I wish I could move markets like that!

Okay, guys. It’s 6:15 am here, and I’ve been up all night.

So, I’m gonna get some shut-eye now, and come back to this later in the day.

[B]Joe,[/B] I’ll try to tackle your questions later. I’m not ignoring you.

.

14

I found some errors in the [I]Tokyo[/I] times shown in the table in post #1, and in the chart in post #2. The errors were due to my overlooking daylight saving time, when constructing the table and chart.

I have edited post #1 to show the correct Tokyo times.

And I have removed the Trading Sessions chart from post #2, and replaced it with 2 new charts:

(1) a corrected version of the chart previously posted, built on the April 6-7 EUR/USD tick-volume chart, and

(2) a new chart, built on the January 14-15 EUR/USD tick-volume chart (before the switch to daylight saving time in London and New York).

.

15

I did a quick search on the internet for [I]forex market hours[/I] and [I]forex trading sessions[/I] to see what various brokers, advisors and others are showing. I found only two websites – Forex Early Warning, and Oanda – that attempt to correlate trading sessions to liquidity, volatility, or volume. Here is a comparison of those schemes with the one I have proposed –

Forex Early Warning - Session Times and Volatility

Oanda - Session Times

Session Times Based on Liquidity

.

16

G’day all

Must admit, I thought we would get a bit more debate here. So I went back and extracted from my data tick volume on the 30min EURUSD for 2015 since it’s the example chart. Here are my results

EURUSD 2015 30min.jpg700×348 26.9 KB

So again each block represent 30min period GMT and each one block is a full year’s data. Very similar to Clints Chart bearing in mind Clints Scale starts at 2100hrs where_as I’ve started off at 0000hrs.

What is does show is the volatility/liquidity that can occur around 1800hrs. A time period when European markets have been closed for an hour or two. It also showed that volatility/liquidity dried up as the year progressed in 2015. It started building in Jan, Feb. Peaked March and April and as the saying goes, sell in May and walk away.

Any thoughts???

17

Many thanks.

18

.
In the images below, the world map is screen-captured at the 5 key times of day
when the [B]4 trading sessions based on market liquidity[/B] “open” and “close”.

Regions of daylight and darkness are clearly depicted in these screen-captures,
taken between 5 pm (New York time) on June 20, and 5 pm (New York time) on June 21,
which happened to be the time of the Summer Solstice in the northern hemisphere.


A new forex trading day begins.
The Tokyo Session opens at 6 am Tokyo time.


Europe and the U.K. enter — and begin to dominate — the market.
The London Morning Session opens at 7 am London time.

— continued in the next post —

.

19

.
— continued from the previous post —


The U.S. and Canadian markets join the European and U.K. markets
as the London/New York Overlap Session begins at 7 am New York time.


The trading day winds down in Europe and the U.K.
Trading continues in the New York Afternoon Session.


One trading day ends in New York —
— and another trading day begins in Tokyo.

.

20

It’s so hard to find accurate and honest information about session opening/closing times so this post was badly needed - thank you. For a newbie, it’s disheartening to think that something as FACTUAL as market opening/closing times would be subject to so much disagreement and inaccuracy.

Of course, keeping track of world times, is complicated enough without factoring in daylight savings time.

<strikethrough>So here's my question.


[quote="Clint,post:1,topic:78475"]


Here are the four trading sessions which I believe best show how the market has organized itself:



	[U]Session[/U]
	[U]Tokyo time[/U]
	[U]London time[/U]
	[U]New York time[/U]


	London Morning Session
	3pm - 8pm
	7am - 12pm
	<strong>2am - 7am</strong>


	London / New York Overlap Session
	8pm - 1am
	12pm - 5pm
	7am - 12pm



.
[/quote]


Doesn't the London session open at 3am New York time? So the London/Tokyo overlap (if there even is one) is from 3am-4am EST.  If not, I've been doing it wrong for a while.</strikethrough>

Never mind - you already answered it, but I was too impatient to read the whole thread!