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Level-1 Module-3 Chapter-2
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Understanding the Tokyo Forex Session
What do you call a North American forex trader who trades during the Tokyo session? A sleepwalker with a profit motive! 💤
Understanding the dynamics of the Tokyo session is crucial for forex traders, especially those interested in Asian currencies or looking to capitalize on early market movements. This session is a key player in the global forex landscape, and mastering it can offer significant trading opportunities.
Tokyo Session Timing
For traders based in the United States, the trading day actually begins on Sunday night at 5:00 PM EST (10:00 PM GMT). However, liquidity doesn’t really emerge until the Tokyo session opens a few hours later.
The Tokyo session officially opens at 12:00 AM GMT and closes at 09:00 AM GMT. In local Tokyo time, this translates to roughly 9:00 AM to 6:00 PM. It’s important to note that the Tokyo session is often referred to as the Asian session, as it includes trading activity from other major financial hubs like Singapore and Hong Kong.
To help you keep track of market hours, we offer a Forex Market Hours tool that automatically converts all four trading sessions to your local time zone. This can serve as a handy reference until you remember the market hours from memory.
Why the Tokyo Session Matters
Japan ranks as the third-largest forex trading center globally, which is not surprising given that the yen is the third most traded currency, accounting for 16.8% of all forex transactions. In fact, about 20% of all forex trading volume occurs during the Asian session, with other significant contributions from financial centers like Singapore and Hong Kong.
Here’s a breakdown of the forex trading volume:
Tokyo: 4.5%
Singapore: 7.6%
Hong Kong: 7.6%
This indicates that the Asian session might be a more appropriate term than just the Tokyo session, reflecting the broader trading activity across the region.
Pip Ranges During the Tokyo Session
Understanding pip movement during the Tokyo session can help you strategize effectively. Below is a table outlining the average pip ranges per hour for major currency pairs during this session:
Currency Pair | Average Pip Movement |
EUR/USD | X pips |
AUD/USD | Y pips |
USD/JPY | Z pips |
These values are based on historical averages and may vary depending on liquidity and other market conditions. For real-time pip ranges, consider using our MarketMilk™ app.
Key Characteristics of the Tokyo Session
Diverse Market Participation: The Tokyo session isn't solely focused on Japan. A significant amount of forex transactions occur in other financial hotspots like Hong Kong, Singapore, and Sydney.
Major Participants: The main market players during this session include commercial companies (exporters) and central banks. Japan’s economy heavily relies on exports, which drives a lot of transaction volume.
Liquidity Dynamics: Liquidity can sometimes be thin, making trading during this period feel like fishing—often requiring patience before you get a nibble.
Focus on Asia-Pacific Currency Pairs: Expect stronger movements in Asia-Pacific currency pairs like AUD/USD and NZD/USD compared to non-Asia pairs like GBP/USD. This is particularly true during news releases that impact the region.
Early Action: Most of the market activity occurs early in the session, particularly when significant economic data is released.
Setting the Tone for the Day: Moves in the Tokyo session can set the tone for trading in the subsequent sessions. Traders in the London and New York sessions will often refer back to the Tokyo session's performance when making their strategies.
Post-New York Consolidation: Following significant moves in the preceding New York session, you may notice consolidation during the Tokyo session.
Which Currency Pairs to Trade
Given that the Tokyo session coincides with news releases from Australia, New Zealand, and Japan, this presents a prime opportunity to trade these currency pairs. Expect increased movement in pairs involving the yen (JPY) as well as those heavily influenced by Chinese economic data, due to the close trading relationship between Japan and China.
For instance, trading pairs like AUD/JPY and NZD/JPY could be particularly rewarding during this session. When Chinese economic data is released, significant volatility can impact both AUD and JPY pairs.
Is the Tokyo Session Right for You?
Whether you should trade during the Tokyo session ultimately depends on your personal trading style, risk tolerance, and availability. If you prefer lower volatility and tighter price ranges or if you have a particular interest in trading JPY pairs, the Tokyo session might be an excellent fit for you.
Conversely, if you thrive on high volatility and enjoy trading during more active hours, you may find the Tokyo session less appealing. It’s all about aligning your trading strategy with the characteristics of the session.
Final Thoughts
The Tokyo forex session offers unique opportunities for traders, particularly those focusing on Asian currencies. By understanding its timing, liquidity dynamics, and key characteristics, you can maximize your trading potential during this crucial market period.
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