Trading the Tokyo session

Also known as the Tokyo session, the Asian trading session is often overlooked as it isn’t as liquid and volatile as other major trading sessions. However, these characteristics are exactly why the Asian session can be attractive to those who know how to trade it.

This lesson will walk you through the nuances of this trading period – giving you the Tokyo forex market hours and ideal strategies to consider.

What are the Tokyo forex market hours?

The Asian forex session starts off the trading week on a Monday morning at 9am and closes at 6pm, Japanese Standard Time (JST).

Considering the fact that the FX market trades 24 hours a day, official starting times are subjective. But it’s generally accepted that the Asian session begins when Tokyo banks come online due to the volume of trades they facilitate.

New Zealand and Sydney, Australia are technically the first, reasonably sized, financial hubs to start the trading day. Below is a summary of the different times traders will be able to access the Asian market in their respective time zones:

*These times are subject to change with daylight savings changes.

Major economic centers in Europe and the US aren’t at work for the majority of the Tokyo session, which contributes to the lower trading volumes experienced.

Things to know about the Tokyo session

The Tokyo forex session is typically known to adhere to key levels of support and resistance due to the lower liquidity and volatility experienced. We’ll discuss the following traits of the market below:

Lower liquidity
Lower volatility
Clearer entry and exit levels
Ideal for sound risk management
Breakout trade opportunities after the close

Lower liquidity

With lower liquidity, none-Asian markets such as EUR/USD, GBP/USD and EUR/GBP are less likely to make large moves outside of generally observed trading ranges.

The chart below shows this effect with the Asian session depicted in the smaller blue boxes, while the London session and US session are depicted in the larger red boxes.

Lower volatility

Because the primary liquidity coming into the market is from Asia, movements, in general, can be smaller than what will be seen during the London or US sessions.

Clear entry and exit levels

Levels of support and resistance assist traders with opportunities to enter or exit trades. Combining this with signals from indicators further increase the probability of entering a good trade.

Essentially, it is easier for traders in the Asian session to spot levels of support and resistance as they are generally well-defined and coincide with the trading range.

Ideal for sound risk management

It may be easier to manage your trades better when markets are less volatile. The slow nature of the market can potentially allow for more thorough analysis of risk and reward.

Breakout opportunities after the close

As the Asian trading session comes to an end, it overlaps with the start of the London market. More liquidity can normally be seen instantly and traders often witness breakouts from established trading ranges.

Ideal currency pairs to trade during the Tokyo session

The most ideal currency pairs to trade during the Tokyo session will depend on the individual trader and strategy employed.

If you’re looking for highly volatile markets during this time, the Japanese yen, Singapore dollar, Australian dollar and New Zealand dollar may be the ideal markets for you.

For less volatile pairs, you may want to target none-Asian currencies, mainly EUR/USD, GBP/USD and EUR/GBP, to list a few.

How to trade ranges during the Asian session

The two most common strategies in the Tokyo forex session involve breakouts and range trading. Below is an example of a short position when trading using ranges. Note that the same logic can be applied to long positions.

Here’s how to interpret the chart markings above:

Trade set up

One way to trade ranges is to look for sell signals when a market’s price trades near resistance while setting an initial take profit level near the bottom of the range.

Traders will often enlist the help of oscillators such as the RSI and stochastic indicators to provide buy and sell signals.

The Asian session takes place in the blue blocks on the chart.

Entry point

Using this particular strategy, you can look for buy signals when the market’s price approaches support and sell when it approached resistance.

The stochastic indicator displays when the market is in ‘overbought’ territory, giving traders a sell signal (circled in blue on the chart).

Stop loss

A stop can be placed above the level of resistance as this is historically the level that prices have bounced back from.

Take profit

Some traders usually look for more pips in their favor compared to what they could potentially lose if the trade moves against them. This is referred to as a risk-to-reward ratio and should ideally be at least 1:1.

With that said, if the market moves from the top of the range to the bottom of the range on the chart above, the trader is targeting 80 pips while risking 30 pips – representing a 1:2.67 risk-to-reward ratio.

Range trading is likely to be less effective when the London and US sessions flood the market with liquidity. The chart reflects this, with the large breakout towards the downside before recovering back within the channel.

Should you still wish to use this strategy, you may want to use stops and limits to maintain your exposure within the channel.