Quick pop
quiz! What time of the day are TV ratings highest? If you said during prime
time, then you would be correct!
What does
this have to do with trading sessions? Well, just like TV, "ratings"
(a.k.a. liquidity) are at their highest when there are more people
participating in the markets.
Logically,
you would think that this happens during the overlap between two sessions. If
you thought that way, you'd only be half right. Let's discuss some of the
characteristics of the two overlap sessions to see why.
Tokyo - London Overlap
Liquidity during this session is pretty thin for a few reasons.
Typically, there isn't as much movement during the Asian session so, once
the afternoon hits, it's pretty much a snooze fest. With European traders just
starting to get into their offices, trading can be boring as liquidity dries
up.
This would be an ideal time to take a chill pill, play some
putt-putt or look for potential trades to take for the London and New York sessions.
London - New York Overlap
This is
when the real shebang begins! You can literally hear traders crack their
knuckles during this time, because they know they have their work cut out for
them. This is the busiest time of day, as traders from the two largest
financial centers (London and New York) begin duking it out.
It is during this period where we can see some big moves,
especially when news reports from the U.S. and Canada are
released. The markets can also be hit by "late" news coming out of
Europe.
If any
trends were established during the European session, we could see the trend
continue, as U.S. traders decide to jump in and establish their positions after
reading up what happened earlier in the day. You should watch out though, at
the end of this session, as some European traders may be closing their
positions, which could lead to some choppy moves right before lunch time in the
U.S.
