Overnight Trading: How It Works and What Are the Benefits

According to some participants of the forex market, night trading is impossible. Indeed, market activity is very low compared to the daytime, but it is this moment that allows you to place the most profitable trades. The reason for this is the benefits of a low activity state of most players in the financial markets.

However, the night period of the market can also be of interest. This is confirmed not only by beginners but also by more experienced traders. Let us have a look at the main features of night trading, and learn about its pros and cons. After that, you will be able to decide if that`s something you should try or not.

What Are the Peculiarities of Night Trading?

According to some market participants, trading at night (we mean European time zones) cannot give positive results. If we analyze the nighttime, we can note a rather low activity of exchange trading. This is why many market participants consider trading on a low-liquid market ineffective. However, using special methods and strategies, the disadvantages of the night session can turn into clear advantages.

At midnight there is a lull in the European markets. The last trading session is the American one, and after its completion, the large traders cease active operations. The number of participants is reduced to a minimum, which directly affects the dynamics of the quotes movement. The exceptions to the rules are those exchange players who have large deposits and intend to gradually increase their profits. They enter the market during the Pacific session, planning to earn on calm and balanced trades.

At night traders who live in Hong Kong and Singapore join the work. They buy and sell currency pairs with the yen and other Asian currencies. These financial assets can be traded with increased liquidity, while most investment instruments show only minor price fluctuations.

The most popular and calm pairs for overnight trading are cross pairs with the British pound, the Swiss franc, and the euro.

Some traders, on the contrary, prefer to take risks in pairs with the Japanese yen. You should choose them only if your trading strategy demands it and you clearly understand what you are doing and why. You should not use extra leverage, especially during the publication of Japanese data. A sharp price movement in the opposite direction from you can quickly bring your account balance to zero.

Before you begin trading, be sure to pay attention to the spread level (the difference between the Bid and Ask prices). At night, it can widen due to lower volatility. This can be disadvantageous if you are going to open the shortest trades according to a scalping strategy. Calculate all the nuances.

It is also important that there is almost no news released during this period, which means you need to determine what data you will rely on when making a trading decision. It may be the analysis (indicators that show overbought and oversold areas - for example, Stochastic or RSI) and also a graphic analysis in combination with support and resistance levels.

Do not expect large swings in a standard situation: 20-40 pips is usually the overnight high.

Also, make sure that your concentration is really high and that you are not tired and sleepy. All these psycho-emotional factors can seriously harm your trading, even in such a calm market.

What Strategy Works Best for Night Trading

From approximately 0:00 to 03:00 and from 3:30 to 9:00 EU time the forex market is very calm and rather technical. For professionals, it is equivalent to the word "predictable". The price does not change very actively, and, therefore, the strategy based on the sideways direction at this time works best.

Scalping also takes place, but the length of the trades may increase. Also, it should be taken into account that many trading robots are automatically disabled for the night period: the signals the system receives during the day differ from those that can be received at night. It's all about lower dynamics and volumes. Because of this, a very large trade that suddenly appears in the market may instantly move the price in a completely unpredictable direction, wiping out the Stop Losses of retail traders. Be careful!

In any case, if the "night sleep" is built into the algorithm of your trading Expert Advisor, and you have decided to collect a little "cream" from the market slack, plan the transition to manual mode beforehand.

Tips For Overnight Trading

Japanese assets gain high volatility overnight. Experts recommend following a few rules when trading forex at night:

• Working in manual mode will be optimal. The trader should monitor charts and determine how fast quotes are moving. Automatic trading at night can bring heavy losses, so it is not recommended to use robots;
• It is acceptable to use expert advisors or indicator programs. Receiving signals to enter and exit a position, the trader will make a quick decision and simplify their professional activity;
• Take a closer look at scalping. Short-term strategies can give good results at night. The Asian session shows sluggish movement, so the trader can earn only on scalping.

At the same time, it is necessary to take into account the peculiarities of the night period. The trader can be quieter when working at a nonstandard time, but due to low liquidity, their deposit may decrease. To organize your daily work properly you need to have a clear plan and correct your strategy as you gain experience.

Is it Worth Trading at Night?

Experts have not yet come to a consensus on how effective night trading is. This strategy has both advantages and disadvantages, which affect the productivity of the working process. To make your own decision, you should evaluate the tactic by identifying its positive and negative aspects.

The advantages of night trading include:

• The market is in a relatively calm state. Risks are minimized. This is a good option for those who are unsure of their trading skills and want to reduce potential losses. The trader can test a new strategy in conditions of minimal risks, gain valuable experience and improve the working methodology;
• A huge number of instruments can be used at night. A trader will learn to apply indicator programs and advisors, experiment with different approaches and tools;
• If a person has a profession and does not want to give up their main type of earnings, they can periodically trade at night. Before going to bed, the trader will enter the market, place several profitable trades and go to sleep. This is very convenient for beginners who are keen on market trading, but are not ready to make this profession their main occupation;
• At night, a trader can practice identifying price movements. This is a good time to trade channels and study support/resistance lines. This tactic can be considered the best option for traders who are just starting their trading careers.

The negative aspects of night trading include a lack of normal sleep, which can have a negative impact on a person's health and concentration. Still, if you live in not in Europe, then it doesn`t refer to you. Working at night, a trader misses the European session and therefore operates in less liquid markets. They miss the opportunities which are inherent to daytime trading. Because of the low volatility, many brokers widen the spreads. Speculation becomes less profitable.

Conclusion

Trading at night can be very profitable, but only on condition of the correct choice of tactics and strict observance of specialists' recommendations. Traders must pay special attention to the economic calendar to make the most out of overnight price fluctuations, because it describes the successful ( or not desirable) moments to place orders. By choosing the best hours for night trading, the trader will raise their level of professionalism and achieve outstanding results.

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