Commander in Pips: Maybe you have noted already, we’ve talked about the fact that liquidity increases during crosses of different trading sessions. So, I offer to talk about this. There are two major overlaps here – “Tokyo-London” and “London-New York”. As you will see, the reason for that is not only the liquidity growth.
Pipruit: And what about “New York-Tokyo, so to say, closes the loop?
Commander in Pips: Hm, if you take a look at our trading sessions diagram in the first part of this chapter, then you’ll see that the New York session barely crosses with Tokyo. Even if it does, this overlapping has an absolutely insignificant effect.
So, let’s start from the Tokyo-London crossing.
- This is a minor crossing of trading sessions in sense of significance. One of the reasons for that is the tight period of crossing of these trading sessions. Usually overlapping lasts for just 2 hours in summer time and only 1 hour in winter. We should understand also that this time is also extremely approximate. Would you start an active business decision, say, in 17:00-18:00 (Japan) or in 8:00 in the morning (London). Generally not. So, that is happening on the market. When the Asian region has almost finished its trading day, Europe is only ready to begin it.
- That’s why you don’t see much activity during this period. Liquidity is not also not very impressive. From the other side, this time is quite suitable for developing a trading plan for the London and New York trading sessions.
- This crossing is quite another tune, because the overlapping lasts approximately 5 hours, i.e. half a day. In fact activity starts to decrease around the NY lunch time. With more than 50% overall daily transactions you see that market is strongly activated. The big whales of FOREX start to toss and turn their billions, wires are burning off and all this stuff comes to life. This is the most active and busy time of a trading day, because it involves two major financial centers in the world.
- Important news and macro data from US and Canada flow into markets in the beginning of New York’s trading day. Also market could be shaken by late news from Europe.
- If some important data has shaken the market during the London session, or if a strong trend has been established, we can see that it could continue during the New York session. It happens, because US traders investigate what has happened earlier in the day, and they take this data into account and also often join to current tendencies and trends.
- When the London session comes to an end, European players could start to close their positions. US traders, in turn, remain in the game. This combination can lead to choppy price action closer to New York’s lunch time.