This video provides insights into which currency pairs work best, have more liquidity and how currencies are correlated in different sessions in the forex market. The major currency pairs have low spread and are actively traded, making them favorable for trading. Understanding the currency pairs that are influenced by only one active currency in a session is crucial when choosing trades. Additionally, in the London and New York sessions, choosing a pair where one currency is weak and another strong increases the chances of the trade moving.

Smart Trading: Understanding Currency Pairs and Correlations in Different Sessions

Introduction

With over $5 trillion traded daily, the foreign exchange (Forex) market is the largest and most liquid financial market globally. Forex trading involves buying and selling currencies in different pairs, and understanding which pairs work best, have more liquidity, and how currencies are correlated in various sessions is crucial for traders. In this article, we will explore these concepts in detail.

The Three Major Sessions

The Forex market is open 24 hours a day, but there are three major trading sessions – Asian, London, and New York. The Asian session starts at 00:00 GMT and ends at 09:00 GMT. The London session starts at 08:00 GMT and ends at 17:00 GMT, while the New York session starts at 13:00 GMT and ends at 22:00 GMT.

Currency Pairs in Different Sessions

There are seven major currency pairs in the Forex market – EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, and NZD/USD. These pairs are the most actively traded in the market, and their spreads tend to be lower than minor pairs. However, not all pairs are actively traded in all sessions.

For instance, in the Asian session, the Japanese Yen (JPY), Australian Dollar (AUD), and New Zealand Dollar (NZD) are actively traded. Therefore, currency pairs with these currencies will have more liquidity and movement compared to other pairs. Thus, traders looking to trade pairs like GBP/USD in the Asian session may not find sufficient liquidity as this pair is mainly traded in London and New York sessions.

Correlations in Different Sessions

Understanding how currencies correlate in different sessions is also crucial for traders. For example, in the Asian session, the USD/JPY, EUR/JPY, and GBP/JPY tend to move in the same direction because the JPY is the only currency actively traded in this session. However, AUD/JPY may not move the same way because both currencies are actively traded in the Asian session, and their movement may conflict.

In the London session, the GBP/EUR, GBP/CHF, and Gold (XAU/USD) are actively traded, and traders must ensure that one currency in the pair is stronger than the other. If both are equally strong, the market may consolidate and make trading challenging.

In the New York session, USD/CAD, GBP/USD, and Gold (XAU/USD) are actively traded. Understanding the currency correlations in different sessions helps traders identify the best pairs to trade based on their preferred trading style and risk appetite.

Conclusion

In conclusion, understanding currency pairs and correlations in different sessions is crucial for traders to succeed in the Forex market. Active currency pairs with low spreads and high liquidity in particular sessions offer better trading opportunities. Therefore, traders need to identify the best pairs to trade based on their preferred trading style and risk tolerance. By doing so, they can make better trading decisions and manage their risks effectively.