Sessions and correlations: when to trade and what not to duplicate

Two concepts that beginners neglect and that make an enormous difference: when to trade (sessions) and what to trade together (correlations). The first helps you choose the moments with more movement and lower costs. The second stops you doubling your risk without noticing, by opening three trades that are, in fact, the same one.

The four sessions

The market "passes the baton" through the world's financial centres. The times are indicative (London time) and shift a little with daylight saving:

The overlaps

The best moments are the overlaps, when two sessions are open together:

• London + New York (about 13:00-17:00 London time): the period with the most volume and liquidity: low spreads, wide moves. It's the favourite moment of many traders.
• Tokyo + London (about 08:00-09:00): short, but often with interesting moves.

The best pairs per session

It's not a rigid rule: it serves to choose the pairs that at that hour have more movement and lower spreads. Trading EUR/GBP at three in the morning, for example, means waiting for a move that will probably only arrive in the morning.

The moments to avoid

• Friday close and Monday open: wide spreads and "gaps".
• The rollover hours (around 22:00 London time): abnormal spreads for a few minutes.
• Holidays of the big centres (Christmas, New Year, US or UK holidays): thin liquidity.
• Right before and after high-impact announcements, as seen in the previous lesson.

Correlations

Correlation measures how similarly two instruments move. It ranges from +1 (always move in the same direction) to -1 (always in opposite directions); near 0 there's no relationship.

Classic examples:

• EUR/USD and GBP/USD: high positive correlation. They often rise and fall together, because both are "against the dollar".
• EUR/USD and USD/CHF: high negative correlation. When the euro rises against the dollar, the dollar tends to fall against the franc.
• AUD/USD and NZD/USD: high positive correlation (similar economies and commodities).
• USD/CAD and the oil price: Canada is a big exporter; rising oil tends to strengthen the CAD, so push USD/CAD down.
• Gold (XAU/USD) and the dollar: often an inverse relationship: strong dollar, weak gold.

Why it concerns you: doubled risk

How to protect yourself:

1. Before opening a second trade, ask yourself: "is it the same idea as the first, on another symbol?"
2. Count the total correlated risk: if two trades are highly correlated, treat them as one and halve the risk of each.
3. Look for real diversification: trades on currencies not tied to the same idea (for example one on the dollar, another on the yen against the euro).
4. Remember that correlations change over time and in moments of stress tend to rise (everything moves together).

The dollar as "glue": the DXY

The Dollar Index (DXY) measures the dollar against a basket of currencies (mainly euro, yen, pound). It's a good indicator of sentiment on the dollar: if the DXY rises strongly, almost all pairs with USD as the quote currency (EUR/USD, GBP/USD, AUD/USD) tend to fall. Looking at it gives you the "temperature" of the dollar before deciding.

Compare two correlated pairs

Open two charts side by side: EUR/USD and USD/CHF. Over the same time interval, when one rises the other tends to fall. Then try changing the symbol on the first chart to GBP/USD and watch how it moves together with EUR/USD.

A small operating protocol

Before trading each day, in five minutes:

1. Which session is it and which pair do I choose?
2. Are there important announcements in the next few hours?
3. How is the dollar (DXY) and the general sentiment (risk-on or risk-off)?
4. Do I already have correlated open positions?
5. Is the total risk, adding up the correlated ones, within my limit?

In short

• The main sessions are Sydney, Tokyo, London and New York; the London-New York overlap is the most liquid moment.
• Choose a time window and pairs suited to that hour.
• Correlation ranges from +1 to -1: EUR/USD and GBP/USD often move together, EUR/USD and USD/CHF in opposite directions.
• Correlated positions double risk: treat them as one.
• The DXY gives the temperature of the dollar; correlations change over time.

Practical exercise

1. For a week note at what time, within your window, EUR/USD moves most and with what spread.
2. Compare the EUR/USD, GBP/USD and USD/CHF charts on H1 for a day: how many times did they move the same way (or opposite)?
3. Build a table of your favourite pairs with the currencies they buy and sell: spot the overlaps.