Forex is the largest financial market in the world. Here, the daily transactions are worth over 6.6 trillion US dollars! Thanks to retail brokers, any individual can learn to make money in this vibrant marketplace that rarely sleeps. However, Forex has a learning curve, and finding the best time to buy or sell currencies is not easy.
Traders may use different styles and time frames, but when to buy and sell in Forex is the key question for all of them. One of the biggest advantages of this market is that both ups and downs can bring profit. Here are the basics of buying and selling in 2021.
All currencies are valued against one another, forming pairs. These combinations are classified as Major, Minor, or Exotic based on the economies they represent. Each instrument has an Ask and Bid price. The former is paid by buyers, and their counterparts receive the Bid value.
For example, if the Ask price for GBP/USD is 1.3200, you need to spend 1.32 US dollars to buy one pound sterling. If the British pound loses value, the price for the pair will dip. This will also happen if the US dollar appreciates, as you will still need fewer dollars to buy the same amount of pounds. Now, let’s look at how different strategies define the optimal time for trades.
If you follow the trend, you identify the direction of the market and go along with this sentiment. For instance, if the trend is bullish, you buy and expect the asset to continue growing. In bearish markets, you expect the price to continue falling, so you sell. To identify the direction of momentum, traders use technical indicators like moving averages and the Relative Strength Index (RSI).
This approach is based on the opposite logic. Instead of following the trend, you try to predict its reversal. This requires specific indicators like stochastic oscillators. When you confirm that a pair is overbought or oversold, you may expect the trend to turn around.
When the price is not trending, it moves within a range. This is a segment between support and resistance where the price fluctuates over some time. Range traders can buy or sell depending on the movements.
The Best Time to Trade
Consider the market opening times, too. Generally, the best time for trades is when the market activity is the most intense, so both volatility and liquidity are the highest. For example, the UK market is the busiest right after the London session opens (8 am local time). In two hours, liquidity starts to drop, but it picks up again once the US markets open at noon.
