If you want to succeed at Forex trading, then you must learn how to make quality decisions after researching the optimum sources of information. You will be able to perform this task better if you acquire an understanding of the three session system of Forex.
As you no doubt know, Forex is the most active market in the world operating twenty-four hours a day from 5:00pm EST Sunday to 4:00pm EST Friday. You cannot possible track this market constantly throughout this entire time, which is why the three session system was designed to help you identify the most volatile periods.
Again, you must realize that Forex is a worldwide event and it would take a superman effort to constantly monitor even a couple of currency pairs accurately. The three session system helps you overcome these problems by basically breaking the trading day into more manageable parts.
The central concept is that if you focus your attention on three major trading centers, then you will have a better chance of assessing the entire market. The three centers are the New York, London and Tokyo stock exchanges.
You must also understand that there is a very strong correlation between the stock market and Forex. For instance, if the Dow Jones index rises then so does the higher-yielding currencies, such as the EURO and British pound. In contrast, if the stock market declines, then the safe-haven currencies such as the YEN and USD climb.
You also need to note that currencies pairs are more volatile during very active periods of the stock market. If you can learn to detect these correlated features, then you will certainly improve your ability to trade Forex successfully. You can achieve this objective by paying close attention to the stock market movements because they could well influence the currency pairs of your choice.
The reason that this correlation occurs is that major stock movements are mainly generated by large corporations and governments activating strategic trading decisions. As an integral part of this process, these bodies have to initiate currency transactions in order to complete their deals. As such, Forex quite often experiences a surge in activity at such times.
You should also detect that there are times when Forex is quite tame. For instance, these periods quite often occur just after one of the three major trading centers closes and before the next opens. For example, Forex tends to become very quiet just after the New York exchange closes at 4:00pm EST. You will find that there is little activity normally from this time onwards until about 8:00pm EST when the Asian markets start trading.
You can use this knowledge in a number of advantageous ways. For instance, you can simply relax your attention in times of low volatility and save your resources for more active periods. You can also devise Forex trading strategies based on these features. Scalping is an example, which is best used during very low volatility.