One subject that I have not covered in any of my technical and fundamental articles or strategies is the simple factor of the time of day you trade. But this simple factor has a surprising influence on the daily movement of currencies.
The most heavily traded session take place during the UK and US sessions which can lead to many traders prefer to trade at these times. This is partly due it being the most liquid trading hours for most major currency pairs. This is also due to the dominance of Europe and US traders but this advantage has been steadily decreasing. If traders awake during the Asian session may have to trade longer timeframes or trade through the night. There are uses for looking at trading during certain times such as looking for the most volatile time for different currency pairs. This gives traders the chance to make higher profits as the movements that can be captured are far higher than times with low volatility. The issue is this does not help with which direction the market moves so to study this we will have to look closer at what affects the movement of currencies at different times of the day.
Open and Close Times
One area that has been studied are the times during the opening or closing of certain sessions throughout the day. This is because it has the highest statistical probability that reversals take place. As these can be the start of major reversal there can be highly profitable trades made at these times. One of the theory’s behind this is different areas in the world may have opposing biases so when traders on one side of the world who were negative say USD, if the other side has a bias to a strong USD you can see strong reversals which can carry through entire sessions.
Below are some of most important times
Tests during these times using certain parameters have come out with some surprising results. Using a 4hour chart which matches many of the sessions, parameters of only trading when you have 2 down candles with the second ending lower followed by a strong bullish candle as an entry signal. Using multiple different rations of stop loss to take profit it turned out to be a profitable strategy for almost every setting. The ratio would 1:1 with a take profit and stop loss both setat80pips.Then 1:2, 80 pips stop loss to a 160 pip take profit and so on.
Over a 14-year period it was profitable 51 times out of 56 with profits that far exceeding the small almost in significant losses. Some of the other patterns to emerge was about half of all the trades occurred at either Noon or 16:00 London time. We also notice trades taken during this time were also the most profitable. One theory for this would be that New York session is actually more important than the London session is dictating the future movement of the market. Where the US goes the rest of the world follows.
Overall looking at multiple currencies the most prominent times to trade is during the local time frames but overall the US market hours have the greatest overall effect in dictating the movement. There could be a plethora of different effects that the time causes to the predictability of the market movement which can be harness to develop the perfect forex trading strategy.