Is the London Session a Good Time for Trading?

J

ust when Asian participants go to sleep, satisfied or not from their results after the Asian session, their European counterparts are just beginning their day.

Hey, mate, you alright? Are you ready to exchange some quids?

Because London blokes are ready to knock down some good deals. 

Again, we are referring to the London session as European, because like Tokyo’s case, London is not the only major financial centre in this part of the world.

But since the beginning of trading, traders keep their eyes on London mainly, because of its strategic location. 

The other major financial centres open in Europe are Geneva, Frankfurt, Zurich, Luxembourg, Paris, Hamburg, Edinburgh, Luxembourg, and Amsterdam.

We will give you some facts about the European session and you can conclude for yourself if this is your time to trade, depending on the strategy you have. 

1.  The session in London is fast and active. 

 The slower market in Tokyo will lead to the session in London, and as prices begin to move from liquidity providers based in the UK, traders can usually see an increase in volatility.

As prices begin to come from London, “the average hourly movement “ of many major currency pairs often increases. Support and resistance can break much more easily than during the Asian session (when volatility is usually lower). 

These concepts are essential to the approach of the trader when speculating in the London session, as traders may seek to use this variability to their advantage.

In trading breakouts, you have the possibility to look for variable movements that can continue for an extended period of time.

2.  Watch out for overlap. The “overlap” will occur when London and American sessions literally overlap  ( 1:00 PM GMT to 5:00 PM GMT ). 

These are the two largest market centres in the world, and during these four hours, large and rapid movements can be seen as a large chunk of forex transactions take place during this time. 

To trade during the overlap, you can use a breakout strategy that takes advantage of the increased volatility observed during the overlap.

There is a short period of time when volatility tends to die down in the middle of the session, as traders often go off to eat lunch before waiting for the New York trading period to begin.

3.  High liquidity. The London currency session is one of the most liquid trading sessions. Due to the large volume of purchases and sales, major currency pairs can trade at extremely low spreads. 

Day traders who want to focus on short movements may be interested in finding trends and breakthroughs in trading to reduce the cost of paying spreads.

London is considered to be the forex CAPITAL of the world with thousands of traders making transactions every single minute.

About 43% of all forex transactions happen in London.

Below is a table of the London session pip ranges of the major currency pairs.

These pip values were calculated using averages of past data. Take note that these are NOT ABSOLUTE VALUES and can vary depending on liquidity and other market conditions.

Also, the session range for EUR/CHF has not been included since the Swiss franc has been pegged to the euro at 1.2000 during the period.

Which Pairs Should I Trade?

There are no “best” currency pairs to trade during forex market hours in London, because of the high volume of the transactions, any pair can be traded. 

But there are currency pairs that will reduce the spread due to the large volume and it will result in cheaper distribution costs for the traders. These currencies include the main currency pairs EUR / USD, USD / JPY, GBP / USD, and USD / CHF.

Major currency pairs trading volumes will be extremely high during the overlap between the London currency session and the New York one. 

The most affected pairs by the overlap include EUR / USD, USD / JPY, GBP / USD due to interbank activities between the USA and Europe. 

If your trading strategy is more suited to volatility, then these are the trading pairs to watch out for because they will be flooded with liquidity and move more on average during the overlap.

You can also try the yen crosses (more specifically, EUR/JPY and GBP/JPY), as these tend to be pretty volatile at this time. Because these are cross pairs, the spreads might be a little wider though.

If you have already made up your mind that it is best to trade during the London session, think again and look at the New York session.  Ta-ta! 

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