If you've got some trading experience under your belt, you may have already noticed that market volatility is not consistent.
It doesn't only vary on an hourly basis, but also every week and even month.
It is important to be aware of the level of volatility and how to use volatility protection settings.
Knowing the optimal levels can make the difference between major profits and major losses.
So, what are the best days of the week and best time to trade Forex?
Let's go over the whole trading week.
First of all, there is a slow development of activity from late Sunday to Monday.
Then the uptrend picks up its pace and peaks on Tuesday.
A minor decrease of trading volatility happens on Wednesday...
...right before another increase the next day.
The weekday that scores highest in terms of volatility is Thursday, closely followed by Friday.
At around 17:00 GMT on Friday, all activity ends and the market goes dormant for the weekend.
Still wondering what are the best days to trade Forex?
The answer is simple - it's midweek.
Take a look at the table below to see the daily pip range for major currency pairs.
The red colour indicates low pip range and the green colour indicates high range.
Why choose pip range as a volatility indicator?
While pip range doesn't exactly measure volatility, it's an intuitive way to get a big picture of the market.
Pip range shows how far markets can move, on average, on a particular day.
What it doesn't show, is all the swings within that pip range.
This is just something you have to keep in mind, if you want to know the best days for Forex trading.
When you're using trading software, you can easily track volatility.
All of the data is available to you and you don't have to search for it - especially if you're using a powerful trading platform like MT4 Supreme Edition.
The way time zones work also plays a role in daily volatility.
When it's Monday morning in Australia, it's still Sunday night in Europe.
European and U.S. sessions are not open during this time:
...the markets are already active...
...but volatility is relatively low.
Since there isn't much economic activity on weekends, it's also unlikely that the market will adjust to new conditions.
Sunday night is the only time of the trading week, when gaps occur regularly for currency pairs.
Therefore, Sunday is not the best day to trade the Forex market.
This is why it's not recommended to start your trading week on Sunday.
Judging by the lack of activity on the market, most traders follow this advice.
Monday isn't the best day of the week to trade currency either.
The first half of Monday is sluggish.
European traders wait for economic news and macro data:
...before they decide to open new orders.
As the week begins, traders try to get a feel of future trends and adjust to them.
This is why Monday is the least volatile weekday.
On Tuesday, trading quickens and the market experiences the first spike in activity.
Market volatility on Tuesday is approximately 120-130% of what it is on Monday.
This is why Tuesday is one of the best days to trade Forex.
On Wednesday, there is a slight dip in volatility.
Trading activity decreases to somewhere in between what it is on Monday and Tuesday.
This happens because of a phenomenon known as swaps.
To put it simply, swap is:
For instance, holding a position at the end of Wednesday's session, means triple swap.
However, this is true only in case the position was open over the previous weekend.
When trading small volumes, swaps don't seem like much of a burden.
Many intraday traders never even bother with swaps because they never trade overnight.
For traders who operate with big volume and long-term trades, a positive triple swap can generate profit.
That's why Wednesday is generally a bit lower in volatility than Tuesday and Thursday.
Due to its high volatility, Thursday is another excellent day to trade the Forex market.
Something interesting happens on Friday.
The currency pairs that are popular during the Asian and European sessions begin to overlap.
They stay almost as volatile as they are on Thursday.
Mostly, we are talking about EUR/JPY and GBP/JPY.
Meanwhile, pairs of North America and Asia Pacific currencies drop in volume.
Obviously, this is because of the markets closing on Friday night.
Generally, the first half of Friday sees a lot of trading action and provides good conditions for trading.
Keep in mind that volumes drop significantly in the second half of the day as the weekend approaches.
Moreover, weekly trends can change direction as traders close their positions to avoid weekend risk.
Additionally, the first Friday of each month see the U.S. non-farm payroll report published.
This data release can cause major swings in all dollar-related pairs.
All in all, Tuesday, Wednesday and Thursday are the best days for Forex trading due to higher volatility.
During the midweek, the currency market sees the most trading action.
As for the rest of the week, Mondays are static and Fridays can be unpredictable.
Now that we have overviewed the intraweek market dynamics, let's see what happens throughout the year.
What are the best months to trade Forex?
The whole calendar year divides into three clear periods of volatility.
Out of these three periods, two provide good conditions for trading.
The first good period includes these five months:
After those months, volatility slows down for the duration of summer:
The second good trading period occurs in autumn and is the most volatile part of the year:
December is also a generally good month for trading...
...though there's a noticeable decrease in market activity near the end.
The main reason for this fluctuation in volatility, is holidays.
Any holiday period naturally leads to a decrease in trading volumes.
After the holiday period ends, there's a pickup in market activity.
Once again, it all boils down to the habits of the big market movers.
There's a saying on the trading floors of London: "sell in May and go away".
Not surprisingly, S&P research indicates that summer months show the least returns for most European financial markets.
August is the worst month to trade, since many institutional traders in Europe and North America are on vacation.
This leads to bigger and less predictable price swings.
The big market movers have to protect their portfolios and returns, so:
If you still want to continue trading in the summer, you must prepare for periods of ups and downs.
A range-based system is more appropriate for the summer.
The same goes for trading in small intervals, to catch mini-trends.
Sooner or later, the summer sideway trend breaks.
It usually happens immediately after Labor Day in the U.S. - celebrated on the first Monday in September.
The last four months are the most important for your yearly returns:
...because even after you've experienced a poor summer season...
...it's possible to improve your profits during autumn and winter.
If you've decided to skip the summer trading season, be smart about how you return to the market.
Test the new conditions on a demo account first, to get a better feel for future trends.
The autumn boom reflects the majority of traders returning to the markets, after their summer holidays.
Business activity in other industries, also picks up around this time.
This makes autumn months the best time of the year to trade Forex.
By the second half of December, trading activity slows down - much like in August.
The few weeks before and after Christmas are the slowest.
It's not until mid-January that the markets start to pick up.
The first period of the new year is always an open season for trading.
Traders usually have a period of four-to-five consecutive months to make some cash, before the summer drought hits again.
It may not compare to the autumn season, but it does provide many excellent opportunities.
Without a doubt, it's the second best period to trade the currency market.
Here's one thing to keep in mind throughout the year when it comes to trading:
...if there is a globally celebrated holiday, trading volumes decrease...
...and the markets can go through a few unexpected swings.
This is especially true for major holidays like Christmas and Easter.
As a trader, you should always check up on these holidays and add them to your trading calendar.
So, high market volatility brings more opportunities for currency trading.
And to avoid frustration from lack of market moves - don't trade during periods with low volatility.