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The Japanese economy is among the strongest and most stable in the world. In the forex world, the Japanese (or Tokyo) trading session is the third most heavily traded.
Why? That's because you want to take advantage of Japan's economic power.
Remember, a single economic and political event will cause the market's direction to snap. There are tons of opportunities for you here!
The Tokyo session, also called the Asian session, is one of the critical market sessions. In Japanese local time, it starts at 09:00 AM and ends at 06:00 PM (12:00 AM–09:00 AM UTC).
The session welcomes the new forex market week—you can expect unpredictability here.
However, this session experiences a less liquid and volatile atmosphere because Western traders are inactive during this time. Also, many traders are preparing for the upcoming London session, which takes place after the Tokyo session.
But if you want to participate in the Tokyo session but want to enter a volatile market, there are some currency pairs you can enter, which are:
The Tokyo session does not cover the Japanese financial center; it also encompasses other Asian financial centers. That's the reason why this is also called an Asian session.
Here are the major centers that operate under the Tokyo session:
When these major financial markets operate and trade currencies under the Tokyo session, trading volume is expected to increase.
This factor drives up the volatility and liquidity of the Tokyo session. That makes it part of the peak trading session, together with the New York and London sessions.
The Tokyo session has market quirks that would benefit traders if used properly. Here are some of them:
Less volatility and liquidity don't mean it lacks a volatile and liquid nature. In fact, the Tokyo session still has a high trading session because of the opened financial centers during its operation.
However, the Tokyo session tends to have less volatility and liquidity than other peak trading sessions.
That can be because the major financial centers in the West are not yet open, like in London and New York.
With that, major pair traders tend to wait until the New York and London trading sessions start, making the Tokyo session experience little market movement in these pairs.
If you don't want to waste your time, it's best to avoid trading these currency pairs;
Remember, having low volatility and liquidity is not always a bad thing. With this, you can expect that the market won't move too wildly.
Again, because it's less liquid, you can expect the market to stay in the historical trend. You will want that if you aim for a clear entry and exit level based on the market's support and resistance.
If you combine other indicators and the support and resistance level, you can take a position without fearing investment loss.
Because the London session follows the Tokyo session, you can expect your position to experience market breakout.
London is the most important and heavily traded session in the world. Because of this session positioning, the market movement will transition from slow to fast-moving atmosphere.
When nearing the end of the Tokyo session, more traders will enter the market and provide volatility that would cause market breakout. So, opening a position before the Tokyo session ends would open you to breakout opportunities.
Remember, when the market breaks out from its support and resistance level, you can ensure a profitable gain if you take the right position.
One effective way to ensure that you’re properly trading the forex clock is to trade on the overlapping sessions.
When two trading sessions overlap, you can expect an increased trading volume and activities. This will open your position to the fast-moving market and potential gains.
Here are the two overlapping Tokyo sessions:
The Sydney and Tokyo trading session overlaps when Tokyo opens at 12 midnight (UTC). This overlapping session will last until 5 AM (UTC) once the Sydney trading session closes.
This 5-hour window gives the market even more volatility and trading volume.
If you wish to trade this overlap, you can use the currency pairs with Japanese yen. That includes the;
During this overlap session, you must be on the lookout for Japan’s economic events that would drive up the spike of JPY’s price movement.
The Tokyo-London overlap session has deeper liquidity and more volatility than the Sydney-Tokyo one. That’s because the Asian session overlaps with the most important trading session, the London session.
The overlapping session lasts for an hour and happens from 08:00 AM–09:00 AM UTC.
During the London session, technical traders expect the market to be constantly moving.
They take advantage of this by entering trade positions during this session to capitalize on the market volatility.
If you wish to trade during this overlapping session, you can enter a trade with pairs that include either a euro or yen, such as:
Now you know the importance of the Tokyo session in the fast-moving forex market. In the next lesson, you’ll explore the London trading session and see how it drives the forex market.