A trader during the Asian timezone may find it challenging to trade forex since liquidity and volatility are lower than those during the European or US sessions. USDJPY and AUDJPY offer trading opportunities during the Asian session due to their narrow spreads and high volatility GBPJPY and EURJPY occasionally present trading opportunities, but only on some occasions.
During the Asian session, there are rarely any news releases. Still, monitoring the economic calendar and any scheduled news releases that may affect your position is important. As the second largest economy in the world, China is the country that releases the most economic data. During the last few months, monetary policy announcements by the central banks of Japan and Australia have been the most significant news events.
Here are some potential forex trading strategies you can use during the Asian session.
Tokyo open trend following
USDJPY and other currency pairs are usually most volatile during the Asian session between 9 a.m. and 10 a.m. Tokyo time. Short-term traders can follow the trend until 10 a.m. or even later if the trend lasts longer.
Analyzing the overnight move
To identify profitable trading patterns during the Asian session, traders need to analyze the effects of moves after the Asian session closes.
When the USDJPY is lower today than yesterday’s close in Asia, Asian-based traders are more likely to buy the USDJPY.
Reversal over Japanese lunchtime
USDJPY will likely reverse between 12:00 and 12:30 when the Japanese stock market is closed. This will occur in response to some traders looking to reduce their risk on morning trades and take profits.
Although this strategy is highly successful, it is difficult to make large profits each time since there is little volatility during this period. Using a stop loss of less than 5 pips is the best way to avoid making more than 5 to 10 pips profits under normal trading conditions.
Reversal on Japanese equity close
It’s important to note that USDJPY can reverse the day’s move into the close of the Japanese stock market around 3 p.m. This is because early European and UK traders are taking profits before the market opens.
Stop hunting
Large traders will look to trigger stops during the Asian session due to the lack of liquidity by pushing above or below resistance or support. Stops will most likely occur before 9 a.m. in Tokyo when the market is quiet and on public holidays.
In a stop-hunting strategy, there are two ways to trade.
Look for stops
Traders use this strategy to buy before resistance or sell before support, hoping that stop-loss orders are triggered, causing a quick trend change. Traders usually place their stop loss levels above yesterday’s high or below yesterday’s low. This leads to large moves. Important support or resistance levels are more likely to trigger a large move.
Look for reversal follow-stops
Most of the time, once the stop orders are filled, the market will reverse in the other direction, presenting a trading opportunity.
Trading this strategy requires discipline because the losses can be large. When the strategy makes losses, they can be large, so traders should not chase their losses.
Swing traders
While swing traders will find few trading opportunities during the Asian session, they can be very profitable compared to the rest of the day. This is because the Asian session can sometimes reverse the overall trend and allow traders the opportunity to enter at favorable entry points. Also, the Bank of Japan news can start a long-term trend, so swing traders should be ready to trade during the Asian session.
Bottom line
When trading during Asian time zones, taking a different approach from other trading sessions is essential. Most good trading opportunities arise from range trading, but you must control your losses when the market enters a strong trend.
