Tag Archives: currency market volatility

In the webinar a couple weeks ago a question came up from one of the attendees as to when the best time of day is to trade. This is a question that comes up a lot among forex day traders, though obviously most folks who seek to operate in that arena are constrained by the time zone in which they live. I’m going to present two distinctly different answers to the question – ones that contradict each other.

First, conventional wisdom
When the question of best time of day comes up the answer often put forward is the London/New York overlap period. The reason here is a combination of volume and volatility. London is the center with the highest average forex market trading volume, and New York comes in second (see The Most Traded Currency Pairs for specifics on which pairs are the most active globally and across regions). As such, there is maximum liquidity during this time of day for the major traded currency pairs.

On the volatility side of things the London/NY overlap is also the period when many of the most significant data releases and news items are released. Obviously, the NY morning is when most US data headlines post. Most UK and European data hits before NY gets going, but central bank statements and press conferences do happen in the NY morning. Also, key speakers often have their comments crossing the wires during the overlap period. In other words, there is a lot of news and data to move the markets and create volatility.

Thus, the London/NY overlap period offers volatility and liquidity, which many folk see as keys for worthwhile day trading. But wait!

Performance reality
The folks at DailyFX did a study a few months back looking at the performance of FXCM clients based on the time of day they traded. The results they came up with were entirely contradictory to the conventional wisdom noted above. They argue that it’s the lower volume NY afternoon, Asian, and early-European sessions which see the best trader performance.

Why so?

The author’s argument is that most individual traders tend toward a range-trading approach. This style of trading is ill-suited to volatile markets. As such, the news and data induced volatility we see in the London/NY overlap period is actually a negative for trading in the major pairs. They include a graph which shows a clear trough in the success rates of trades in the NY morning and another that shows the relative volatility peaks at that time of day.

Now, as I wrote in Optimize trading performance by time of day selection, there are some issues with the DailyFX article in its focus on win % as its main metric. The authors did include some system performance figures which provide some more results to back up the overall premise, though. As a result, I think it’s worth at least taking a very hard look at how your trading would do in different time frames during the day.

Makes you have to start wondering about conventional wisdom, doesn’t it? It should also have you thinking about opportunities to diversify your trading time of day. This may not be something you can do yourself because of your available time and locale, but using an autotrading system might offer you an opportunity to do so.

Editor’s Note: Originally derived from the webinar, the question examining what time of day is best to trade Forex had been answered by Trade Leader Taylor Growth during the Q&A session. Since he is a range trader himself, his response was congruent with the second part of the above answer, which leans towards the lower volume NY afternoon, Asian, and early-European sessions as yielding the highest trading success rates.

Taylor Growth explained that the best time of day to trade really depends on the strategy the trader is using. Since his conservative strategy is very technical, he believes it fares better in Asian sessions when trading European pairs. Since it is nighttime in Europe while the Asian markets are most active, no European news releases are making their way out and influencing trades.

1 Comment

It is no secret that the vast majority of mutual funds underperform their benchmarks. This is one reason why hedge funds grew like weeds over the last decade as many managers wanted to showcase their talents at going both long and short. Despite a volatile decade, many hedge funds have found stock picking to be harder than they first thought. Sadly, the ones that are hurt the most by this are investors.

Right now index funds have become a popular alternative, as a passively managed product should at least equal the benchmark. Still, we live in an era where the Dow Jones seems to always be hovering 10,000, the Nikkei cannot hold onto an upward trend and the European equity indices seem to be caught in the middle. Researchers at Dimensional Fund Advisors have released a study that shows the top performing 25% of stocks are responsible for all the gains in the stock market from 1980 to 2008. That means that 75% of stocks lose money. Since industry regulations mandate that a mutual fund has to be highly diversified, it is no wonder that mutual funds underperform. Have I mentioned that these funds charge fees to manage your money as well?

For those that have an interest in seeing their investments grow it is time to look outside the traditional investment box.

How about investing in currencies? The universe of currencies is small compared to that of equities. The chance that the euro, pound, yen or the US dollar goes to zero is small – very small. Just look at the woes in Europe - and realize that the euro is still worth more than the US dollar - and you get the picture. Transparency, liquidity and other important factors are all extremely high. Fees should be relatively small (swap points and other factors, which will depend on your broker) and you are your own manager.

Hesitant? Then take a look at your mutual fund holdings and tell me be about each company that you own. Not sure where that holdings list is? You shouldn’t be afraid of doing a little homework and investing in foreign exchange.

In terms of looking for information and strategic ideas, you should start at Currensee. Here there are investors and traders who show their trades, strategies and returns. Build a team and share ideas. Take a look at the ‘Strategy’ section, where you can see profitable and not-so-profitable trading ideas. In the ‘Community’ section, you can filter through these strategies to help you find one that matches your style.

Will the problems in the Euro Zone continue and help the US dollar gain versus the euro or has the euro hit bottom? Both the Australian and Canadian dollars are near parity to the US dollar, but can this continue? The yen has made sizable gains against most all currencies over the past few years, yet it has major fiscal problems. To say that there will be sizable moves ahead in the currency markets is an understatement.

You could always place more money in a mutual fund, most of which underperform, or you could manage your own money, learn the world of foreign exchange and look for returns in the world’s largest market.

This report is for your information only and does not constitute investment or business advice or an offer to buy or sell securities.

=====

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

There has been a lot of discussion of late on Currensee about trading and more specifically what the keys are to successful trading. Many involved in the discussion would love to trade for a living. Some involved in the discussion are actually doing it, while others would like to be, and still others dream to be trading fulltime. Do you have what it takes to not only be a successful trader, but to trade for a living?

As you might imagine, there is a huge difference between a successful trader and one that trades for a living. One trait that is necessary is belief in a strategy that you have tested out and are comfortable with in different environments. That means not only in volatile and oscillating markets, but also in the trading environment that you are exposed to. The latter may be more important; for example, do you trade in the same room as your friends or spouse? If you are losing money will you be harassed? Do you have to be somewhere at 2pm just when you should be putting a trade in?

Even if the above factors are not obstacles to your trading, and you have enough capital, are you able to overcome the usual psychological obstacles that inhibit many traders? For example, you just went short EUR/USD at 1.2070. It has traded down to 1.2050, but your T/P level is 1.2015. Just like that it has popped up to 1.2085, so what do you do? You put the trade on because you thought it was going down, which it did, but now you are in the red on this trade. This also happens to hurt all your trading performance statistics if you are trying to build a track record. Most traders – I should know, as I have sat next to many who think that they can trade over the years – say, “When I’m back in the money I am going to close this trade.” It goes back to 1.2065 and, as expected, you close.

Now, was this the right thing to do? I mean, since all trades go from Point A to Point B in a straight line, of course it was the right thing to do! Not. You walk away, then come back a few minutes later and EUR/USD is 1.2015. Not good. You lose 50 pips on your next trade, and you keep wondering what is going wrong.

Well, first of all, less than .01% of all trades move in a straight line. You picked out 1.2015 for a reason. It’s basically the same thing that an Olympic skier does before a race – they envision the course, they conquer the obstacles, and they succeed in going down the mountain in Olympic form. If you picked 1.2015 and didn’t get stopped out, then you need to stick to that trade unless conditions change. Don’t get me wrong, sometimes the market will never hit that 1.2015 mark, like Olympic skiers missing a turn, but at least you have the opportunity to adjust as compared to a skier that misses just one turn.

If you have a strategy that you are comfortable with, then you need to let your trades play out. We’ll revert back next week with a follow-up post on the psychology of trading.

This report is for your information only and does not constitute investment or business advice or an offer to buy or sell securities.

======

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

What better way to end July than with an exciting and innovative release? The Currensee Team has been busy taking the product to the next level and we’re happy to launch the following new features to the platform today.

Fully Customizable Dashboard

Want to get all of your Forex trading information in one place? Our new Dashboard is paving the way to help you reach that goal. You’ll be able to choose the components that you want to see on your personalized Currensee dashboard. Want to see specific news in one place and your positions table in another? No problem, just click and drag it to where you want it.

Market Watch Improvements

We made a series of performance enhancements to our social indicators Market Watch hover and added win-loss indicators to show where the community stands against a particular currency pair.

Widget Gallery

From Forex to news to fun and games, you’ll be able to choose which widgets are displayed on your dashboard. We’ve even built three different dashboards for you to customize so you can separate the information and view it in a way that’s just right for you.

Community Volatility Widget

We’re excited to introduce the first community-powered Community Historical Volatility Widget. This rich new widget gives traders who use Support and Resistance the ability to analyze historical, community-based volume - all based on real-time price points. We look forward to getting your feedback on this one-of-a-kind widget.

New Interactive Features

You’ve asked for richer community content and we’re delivering. Now, in addition to the discussions that have been available, discussions can be categorized, commented on and given ratings by users in the community. We also added the ability to create community polls. What to know if the community thinks the USD is about to fall off a cliff? Poll them! It’s quick and easy to use.

That's all for now. We’re heading to Vegas in a few days for the Forex & Options Expo and looking forward to drawing our lucky $1,000 winner. In the meantime, thanks for your continued feedback. We hope you enjoy what you see in this new release.

Happy Trading,

The Currensee Team

======

Be sure to read the full risk disclosure before trading Forex.  Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.