The financial markets maintain habits that were created decades ago, but persist to this day. For example, the importance of London as a financial center and as the trend-setting session of the FX market. Another one of these habits, that futures traders will be more familiar with, is the “pit session”.
Nowadays our price charts continue to tick almost 24 hours a day thanks to electronic trading. But this can confuse traders because the bars on the charts don’t carry the same weight. It’s best to have an awareness of when the “pit” sessions occur, because that’s when there’s more depth to the market, more volatility, and your charts gain more robustness.
In the Pits
The New York Stock Exchange in 1963
In orgin there was no electonic trading. Since the development of the stock exchange in the 17th century in Amsterdam, open outcry was the main method used to communicate among traders using a plethora of hand signals. This started changing in the 1970s, first through the use of telephone trading, and then starting in the 1980s with electronic trading systems.
Paul Tudor Jones, one of the first Phone Traders – Source: Trader, The Documentary
The “Pit” session was the only time to trade. This meant all of the day’s activity was squeezed into 8 hours of trading. This time compression, along with the relative inefficiency of the order routing (compared to today that is!) meant enhanced volatility conditions despite the liquidity available.
The Importance of Regular Trading Hours
As you might have already guessed, the importance of Regular Trading Hours (RTH) resides in the higher liquidity and participation levels. This, in turn, gives more robustness to your price charts and in fact, many traders today still prefer to use RTH charts – which are charts that don’t show the Electronic Trading Hours or “Globex” session as it is called.
The chart above is a decent example because in the summer doldrums liquidity is particularily poor, and the RTH session can be easily distinguished. Look at the size and nature of the price bars ahead of the RTH session. It’s a visual cue that nothing much is going on and any levels that are created during the session don’t have as much weight as levels created during the RTH session.
Even our guest trader Matt, who is specilialized in Crude Oil and energy markets, says that it’s “useless” to watch Crude Oil before 12 PM/1PM London Time due to the fact that liquidity is just really poor and nobody is trading it (his session is included in our System Development Workshop Videos).
Be Aware of the RTH
The bottom line is this: be aware of the regular trading hours of whatever instrument you’re trading. FX doesn’t have this issue because it is traded round the clock from Monday to Friday. But Other instruments do have their sessions. Here are the time schedules of the more popular instruments:
- US Stock Indices (S&P500, Nasdaq, Dow Jones, Russell 2000): 9.30 to 16.15 EST
- FTSE 100: 8.00 to 17.00 BST
- DAX/EUROSTOXX: 7.50 to 22.00 CET
- US Bonds (5Yr, 10YR, 30YR): 8.20 to 15.00 EST
- Metals (Gold, Silver, Copper, Platinum): 8.10/8.25 to 13.00/13.25 EST
- Energy (Crude Oil, Natural Gas, Heating Oil): 9 AM to 14.30 EST
You can use an international time zone converter to check the times in your local timezone.
Over to You
If you want to trade like professionals, you need to adopt the habits that professionals adopt. The Pit session still maintains it’s relevance, and as such should be the main time for placing trades and evaluating activity. I would encourage you to check your trades and go see whether trading outside of these hours has b
About the Author
Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.
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