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Trading the Tokyo session in forex offers traders direct exposure to the Japanese Yen (JPY) and insights into the monetary policies set by the Bank of Japan (BOJ). This session’s proximity to Japan’s financial center provides a firsthand view of market sentiment and potential shifts in currency values influenced by BOJ interventions.

In this guide, we will understand everything about the Tokyo trading session.

 

What are the timings for the Tokyo session?

The Tokyo session in the forex market opens at 12:00 AM UTC (Coordinated Universal Time) and closes at 9:00 AM UTC. During this session, liquidity tends to be higher for currency pairs involving the Japanese Yen, such as USD/JPY and EUR/JPY.

 

Trading strategies for the Tokyo session

Range trading 

During the Tokyo session, range traders identify currency pairs that tend to trade within specific price boundaries. They analyze price action and historical data to pinpoint key support and resistance levels. For example, when USD/JPY demonstrates range-bound behavior during this session, as Japanese participants primarily influence the market, traders look for instances where the price consistently bounces between certain levels. 

Traders can then place long orders near identified support levels and short orders near resistance levels. The goal is to gain from the predictable price reversals within this established range, taking advantage of the repetitive nature of market movements.

The risk in range trading during the Tokyo session lies in the potential for a sudden and unexpected breakout beyond the established boundaries, leading to losses if the trader’s stop-loss orders are not properly placed or if the breakout occurs with significant momentum.

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Breakout trading 

Breakout traders in the Tokyo session focus on monitoring currency pairs correlated with the JPY (such as EUR, USD, AUD, etc.) for significant price movements beyond established support or resistance levels. They anticipate heightened volatility, particularly during news releases or economic data announcements from Japan or other Asian countries. 

The risk of breakout trading in the Tokyo session is related to false breakouts, where the price briefly breaches a support or resistance level before reversing direction, resulting in losses for traders who entered positions based on the breakout signal.

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Scalping 

Scalpers in the Tokyo session employ a high-frequency trading strategy, executing multiple short-term trades to capitalize on small price movements. They target currency pairs with high liquidity and volatility, such as USD/JPY and AUD/JPY, especially during peak trading hours in the Japanese market. Using rapid execution and tight spreads, scalpers focus on identifying quick entry and exit opportunities based on technical indicators or short-term price patterns. 

Scalping during the Tokyo session carries risks like slippage and spread widening, which can diminish gains, especially with tight margins and frequent trades. Moreover, rapid price fluctuations in volatile times can amplify losses if trades are not carefully managed.

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What are the best trading overlaps with Tokyo sessions?

Tokyo-London session

The Tokyo-London overlap occurs briefly during the Asian and European trading sessions. It lasts for about two hours, between 07:00 – 09:00 GMT. The overlap can increase liquidity and volatility by combining the activity of the Asian and European markets. Traders may find opportunities in currency pairs involving the Japanese yen (JPY) and the British pound (GBP). During this time, major economic data releases from Japan and the UK can significantly impact market sentiment and price movements.

Tokyo-New York (NY) session

The Tokyo-New York overlap is one of the most significant trading sessions, combining the Asian and North American markets between 12:00 and 16:00 GMT. It typically occurs during the last few hours of the Tokyo session and the first few hours of the New York session, overlapping for approximately four hours. Traders closely monitor economic releases from Japan and the United States and geopolitical developments, which can influence market direction.

Tokyo-Australia/New Zealand (AU/NZ) session

The Tokyo-Australia/New Zealand overlap bridges the end of the Tokyo session with the beginning of the Australian and New Zealand sessions. It occurs briefly, lasting for about an hour or two, between 22:00 – 00:00 GMT. While liquidity may not be as high during this overlap compared to others, traders can still find opportunities in currency pairs involving the Australian Dollar (AUD) and the New Zealand Dollar (NZD). Economic data releases from Japan, Australia, and New Zealand and any news impacting the Asia-Pacific region can influence trading activity during this time.

 

Top things to know about the Tokyo session 

  • Low liquidity and volatility: The Tokyo session is characterized by low liquidity and volatility, which often keeps major currency pairs within established trading ranges, such as EUR/USD, GBP/USD, and EUR/GBP.
  • Clear S/R Levels: Traders in the Tokyo session rely on clear levels of support and resistance to identify entry and exit points. These levels, combined with signals from indicators, improve the probability of accurate trades.
  • Risk management: The quieter nature of the Asian session allows for better risk management. Traders can thoroughly analyze risk and reward, leading to the identification of potential trading opportunities.
  • Breakout potential at the session close: As the Tokyo session overlaps with the start of the London session, liquidity increases, leading to potential breakout opportunities during closing market hours. 

 

Managing risk by trading JPY during the Tokyo session 

Traders can capitalize on increased liquidity and take advantage of breakout opportunities in the Tokyo trading session. However, sometimes, the market movements can be slow for traders to place multiple trade orders during the session. Thus, traders should consider and manage the associated risks to maximize potential gains when trading the Tokyo session.

 

Disclaimer: All material published on our website is intended for informational purposes only and should not be considered personal advice or recommendation. As margin FX/CFDs are highly leveraged products, your gains and losses are magnified, and you could lose substantially more than your initial deposit. Investing in margin FX/CFDs does not give you any entitlements or rights to the underlying assets (e.g. the right to receive dividend payments). CFDs carry a high risk of investment loss.

Forecasts and predictions about future performance are inherently uncertain and speculative in nature. While every effort has been made to provide accurate and reliable information, there is no guarantee that the events or outcomes discussed will occur as forecasted. Past performance is not indicative of future results.

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