What Is the Best Day to Trade Forex?

Happy Friday!

This week’s question comes from Tomek, who asks:

Do you trade on Mondays? When do you set orders after the weekend? Between Friday and Monday, there is a huge time gap which often leads to different price levels.

When I began trading Forex in 2007, I wanted to trade every second of every day. I figured the more active I was, the more money I would ultimately make.

Also, let’s be honest, I was addicted to trading. In many ways I still am, but now I know how to control it.

It wasn’t until years later that I realized less is more. Making money consistently in this business isn’t about quantity, it’s about quality.

So naturally, if you know which days tend to produce favorable setups you will know whether to stay on the sideline or begin searching for opportunities.

Let’s begin.

For those who trade the 5 or 15-minute charts, the various sessions throughout the day matter. For example, the London and New York sessions tend to be more liquid than the Tokyo session.

But when you make the switch to a higher time frame such as the 4-hour or daily time frames, these sessions become less important.

Instead of concerning ourselves with intraday sessions, we’re more focused on the day of the week. And because the Forex market never closes, a currency pair can open on Monday at a different price from where it closed on Friday.

This variation in price is called a weekend gap. And if you aren’t careful, you can get caught on the wrong side of one and not even your stop loss will save you.

But if you’re trading the higher time frames and want to let your profitable trades run, holding over the weekend is sometimes inevitable.

After all, we only have five days each week to make something happen.

We’ll get to holding positions over the weekend in a moment. For now, I want to focus on the “best” days for trading.

From experience, I can tell you that most quality setups materialize between Tuesday and Thursday. Consider the middle of the week the “sweet spot” for finding profitable ideas.

If you think about it, this makes perfect sense.

When the market opens on Monday, there’s a high level of uncertainty about the direction each pair will take in the week ahead. Traders are just getting back to work after the weekend, so things move a bit slower during this period.

For this reason, I don’t like to trade on Mondays. The only exception is if there is a highly favorable opportunity that I just can’t pass up.

On the flip side, Fridays are when market participants begin to pack up for the weekend. Liquidity dries up as traders exit positions in preparation for their two days of rest.

But that doesn’t mean Mondays and Fridays are a time to kick back and relax. I typically use these two days to analyze the market, update my watch list and prepare for the next round of opportunities.

Most of my positions last anywhere from a few days to a few weeks. But they almost always span at least one weekend in the process.

This creates a bit of a dilemma for most traders.

We’re often told to avoid holding positions over weekends due to gaps that can form on Monday. But if you place a trade on Wednesday or Thursday, that’s difficult to avoid.

So what’s the solution?

I do two things to help protect my capital when heading into a weekend.

The first is to make myself aware of any events on the calendar. For instance, if I have Euro exposure on Friday and I see there’s a Greek referendum sometime over the weekend, it’s probably a good idea to exit the position.

That goes for any currency. I never trade the news, but I’m always aware of when certain events are taking place.

The second thing I do is to make a decision based on where the trade is in its lifecycle. Is it trading at or near my entry or am I up 150 pips by Friday’s close?

Here’s a hypothetical to help clarify things.

Let’s assume that I sell the EURUSD on Wednesday. By Friday evening, I’m up over 100 pips and the price action is signaling the pair will likely continue lower next week.

Alternatively, let’s say I sell the EURUSD on Wednesday, but by Friday evening I’m in profit by just 10 pips. The future direction of the pair is in question, and key support is still intact.

Out of these two scenarios, I bet you can guess which one I’d likely hold into the weekend.

In the first example, I have a 100 pip buffer between current prices and my entry. And as long as the weekend is clear of any Euro or US dollar event risk it seems sticking with the position is the right move.

But in the second example, I don’t have a buffer. Also, provided the pair opens next week near Friday’s close, chances are I’ll be able to secure the same entry if I so choose.

You can probably tell by now that there’s no hard and fast rule when it comes to deciding whether to hold a position over the weekend. It’s all circumstantial and is highly dependent on your personality and tolerance for risk.

But by keeping one eye on the calendar and the other on the state of your position, it becomes relatively easy to make the call one way or the other.

The best trade setups tend to materialize between Tuesday and Thursday. This period is considered the “sweet spot” for those trading from the higher time frames.

When deciding whether to hold a position over the weekend, consider the following questions:

1. Where is the pair trading on Friday in relation to your entry? Do you have a buffer?
2. Are there any events over the weekend that could adversely affect your position?

Although the ideas and concepts discussed in this post have worked for me, at the end of the day, it’s all about finding what fits your personality and trading style. So don’t be afraid to test variations to find what suits you.

I’d love for this new weekly Q&A to be successful and provide an invaluable repository of answers to common Forex questions.

To do that, I need your help.

Here’s what you can do to get involved and have your question answered in next week’s post:

1. Ask questions. Post them in the comments below or Tweet them to me @JustinBennettFX
2. Help me answer questions. If I missed something or if you have something to add, don’t hesitate to leave a comment below.