One of the most important highlights of the forex market is that it is a 24 hour market.
Trading never stops, except on weekends of course. As the sun moves from one part of the world to another, so does action in the forex market.
This is a key factor to consider when designing a forex trading system or method. Depending on the period of the day you are trading in the market behaves differently.
Let’s look at some charts that will help you better understand this issue.
The following is a 5 minute bar chart of the EUR/USD pair. What is the dominating characteristic in this chart?
***chart***
Not hard to spot. Here we can see that the pair is simply moving sideways hence forming a range. More importantly, you can clearly see that the pair is moving not more than 7-8 pips from side to side. So, not only does the pair move in a range,
but a narrow range.
Why is this?
Why is the EUR/USD moving in such a narrow range? Very simple question for a very simple answer: This is because the above chart represents market action that happened within the Asian session. It is no a rule written on stone, but as forex traders we know that the Asian session means low volatility and sometimes liquidity. The natural outcome of this is that the market tends to range in this session.
Now take a look at the following chart and spot the important difference between the two:
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