What time are you trading?

• ragheehorner
• September 23rd, 2009

I think the most challenging part of being a forex trader is the 24 hour market.  Sure it’s great to have 24 access, but anyone who says that all 24 hours trade the same is lying, clueless, or trying to sell you somethin’!

Most of us pick our trading time based on the market’s open and/or close.  I like trading e-mini S&P contracts as well as Dow minis during the clearing.  That first 20-30 minutes and then the next 30 are my brad and butter daytrading times for index trading.

I will enter end-of-day trades in equities usually between 3:00 and 4:00om EST as the market closes and tells us the “truth” about the day.

But what do you do when the market you trade doesn’t really open and close?  The forex presents this question in a number of ways.  Most new forex traders will trade according to what time is convenient to their schedule.  Many will focus on particular financial centers like Frankfurt, London, and New York.  Take a look at the PowerStats chart below.

(Quick story:  The folks over at Autochartist whom I’ve known for about six years now have a program that automates chart pattern recognition across the 15, 30, 60, 240, and daily charts in stocks, indices, and forex.  So they have all this data continually being crunched on their servers cranking out these chart pattern alerts when as they develop and then again when they trigger.  They had all this raw data and wondered if there was anything they could do with it.  So being the brilliant geeks they are they put together PowerStats for the forex market which analyzes over one, three and six month periods the amount of pip movement in the pairs specific to each hour of the day and each day of the week and a whole bunch of other ways.)

So the graph above shows the EUR/USD (aka the “fiber”) broken down into one hour segments across 24 hours.  It’s in EST and most of you should be plenty familiar with the active hours of 8am to 11am EST.  This sample is six months so it factors in pip range movements going back through April ’09.  Each green bar represents the average high to low range of pip movement for that sixty minute and the black band across each bar shows the average.  Notice that not only does to average pip movement highs increase during the Frankfurt open (2am) and then again with London (3am) but it peaks between 8 and 10am EST.

This is not isolated to the EUR/USD either.  The same can be said of the GBP/USD, USD/CHF and even the USD/JPY:

What I’d like to point out on the graph of the pip movement of the USD/JPY is not only the peak during the New York opening hours but the drop off as London winds down for the day.  Notice that after 12:00pm EST the pip movement drops and this is not only as New York goes to lunch but as London gets ready to go grab a pint.    Also notice that for the bulk of the Asian session how with the exception of a handful of bars, the pip movement is fairly quiet.  This reflects what you would see from BIS data (Bank of International Settlements).  The European session (including the U.K.) accounts for nearly 40% of daily turnover while the U.S. comes in at 20% and Asia (Sydney, Tokyo, Hong Kong, and Singapore) comes in at a distant third at 10%.

So let me ask again:  What time are you trading?  Because my point here is not to tell you that the Frankfurt/London/New York overlap is the only time to trade!.  For traders who like low risk and fell more comfortable with lower volatility, Asia is great.  But you must adjust your expectations for movement as the trading day moves from one financial center to the next. The hours between 2 and 4am EST are not going to trade like 2 and 4pm EST!  Generally speaking, London opens are more volatile than Tokyo opens.

If you can use this data to gauge not only your expectations for pip movement but now adjust your risk/reward levels then you are placing your stop loss and profit target orders in line with the most likely amount of movement.

I’m definitely going to revisit this topic and I will be also sharing video updates Mondays, Wednesdays, and Fridays with you at YouTube.  And I’ll be sure to share the links on the StockTwits Desktop.

- Raghee, http://www.twitter.com/ragheehorner

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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