Forex 3-Session Trading System

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In the dynamic world of forex trading, mastering session-specific strategies can be essential for your trading performance. The Asian, European and US sessions in forex have their own unique rhythms and opportunities. This article delves into three strategies tailored to these sessions, offering insights for traders to navigate the complexities of the forex market.

Understanding Forex Trading Sessions

In forex trading, being familiar with the different forex trading sessions is essential. These sessions correspond to the active hours of major global financial markets, each exhibiting distinct trading characteristics. Wondering what time does the Asian session start? Here’s a concise summary of the major sessions:

  • Tokyo Session Forex Time: Typically runs from 11:00 AM to 8:00 AM GMT. This session is the primary Asian session, with contributions from other significant markets like Sydney. It's noted for its relatively lower volatility.
  • London Session Forex Time: Active from 8:00 AM to 5:00 PM GMT (winter) and from 7:00 AM to 4:00 PM GMT (summer), this session encompasses European market activities. It is marked by high volatility and substantial trading volume, particularly during its overlap with other sessions.
  • New York Session Forex Time: Occurs from 1:00 PM to 10:00 PM GMT (winter) and from 12:00 PM to 9:00 PM GMT (summer), involving American markets. Characterised by high liquidity, its overlap with the London session is particularly notable for trading activity.

Below, you’ll find three session trading systems. To gain the best understanding, consider following along in FXOpen’s free TickTrader platform. Note that they’re considered to be best employed on the 1-minute to 15-minute charts, with the 5-minute being preferred.

Asian-London Breakout

Trading the Asian session can present unique opportunities, especially when combined with the increased volatility of the London session. The Asian-London Breakout Strategy capitalises on this dynamic.

During the relatively calm Asian session, traders often observe the formation of a tight price range. This range is defined by its high and low points, serving as critical markers for the strategy.

Entry

  • As the London session begins, around 7:00-8:00 AM GMT, traders may set buy/sell stop orders at both the high and low of the Asian session's range. This approach aims to harness the surge in volatility as European traders enter the market.

Stop Loss

  • Once an order is triggered, a stop loss may be placed above or below the opposing high or low of the range.
  • The other order that wasn't triggered is usually cancelled.

Take Profit

  • Traders may look to take profits at the end of the London session or extend into the New York session, targeting major support or resistance levels.
  • Alternatively, they may trail a stop loss above or below key swing points that emerge as the trading day progresses.

The rationale behind this strategy is that the Asian session's consolidation often leads to a breakout as the London session begins, with new volumes and market participants. By setting orders on both ends of the Asian session range, traders can potentially capture significant moves regardless of the direction.

London Range Retest

The London Range Retest Strategy is a popular method for traders focusing on the volatility and patterns of the London session. It involves identifying a specific range and capitalising on its breakout and subsequent retest.

This strategy focuses on the range formed typically between 7:30 and 8:30 AM GMT during the London session. Traders have the flexibility to adjust this timeframe, possibly extending it from 7:00 to 9:00 AM GMT to better suit their trading style.

Entry

  • Traders look for a breakout from this defined range.
  • Once a breakout occurs, they wait for a retest of the range. Entry points may be identified either at the high or low of the range, at the 50% retracement level (the midpoint between the high and low), or at a specific support or resistance level indicated on the chart.

Stop Loss

  • The stop loss might be set beyond the high or low of the range, potentially ensuring a level of protection against market reversals after entry.

Take Profit

  • Given that the entry may not be triggered until later in the day, traders might prefer to close the trade at the end of the New York session.
  • Alternatively, they may set their take profit at a suitable support or resistance level, aligning with the market’s momentum.

The strategy's rationale lies in leveraging the initial volatility of the London session for a range breakout, followed by a patient wait for a retest. This method offers a structured entry point while managing risk with a well-defined stop loss.

London-New York Reversal

The London-New York Reversal Strategy focuses on the trend reversals often observed at the start of the New York session. It combines technical analysis with timing, offering traders a method to capitalise on these shifts.

This strategy leverages the period between 12:30 and 1:30 PM GMT, a time when the New York session's commencement frequently triggers market reversals as the US stock market opens. The key tool here is the Relative Strength Index (RSI) indicator, which is particularly useful for spotting divergences.

Entry

  • Traders monitor the RSI for divergences with the price movement.
  • An entry may be considered when a divergence forms, coupled with signs of a market reversal. This might be indicated by a specific candlestick pattern, such as an engulfing candle, confirming the reversal.

Stop Loss

  • The stop loss may be placed above or below a nearby high or low, depending on the direction of the trade. This placement helps manage risk in case the expected reversal does not materialise as anticipated.

Take Profit

  • Profit targets might be set at the London opening range, a strategy that aligns with the previous session's initial movements.
  • Alternatively, traders may choose to take profits at another appropriate support or resistance level in line with the ongoing market trends.

The strategy's basis lies in the observation that the overlap of the London and New York sessions can result in trend reversals, particularly detectable through RSI divergences and specific price patterns.

The Bottom Line

In conclusion, these forex session-specific strategies offer valuable tools for traders. By understanding and applying these techniques, you may enhance your trading performance. To put these strategies into practice and experience the dynamic forex market firsthand, consider opening an FXOpen account. It’s a step towards applying these insights in a real-world trading environment, where theory meets practice.