Become a Forex trader expert by following through with our education package. We are available 24/7 to assist you at every step of the way.
As markets open and close around the world, how are major pairs affected? Our data on trader performance shows that traders on average have a lower win percentage during volatile market hours and when trading through faster-moving markets. Conversely, when average pip movements are smaller, traders fair better, yielding higher win percentages.
Chart 7: Trader Profitability by Hour of Day in Major Currency Pairs
Data source: FXCM accounts excluding Eligible Contract Participants, Clearing Accounts, Money Managers, and Hong Kong and Japan subsidiaries from 3/1/2014 to 3/31/2015.
Chart 8: Trader Profitability by Hour of Day in GBP/USD
Data source: FXCM accounts excluding Eligible Contract Participants, Clearing Accounts, Money Managers, and Hong Kong and Japan subsidiaries from 3/1/2014 to 3/31/2015.
To understand this increase in likelihood, look how the British pound behaves in terms of pip movement:
Data source: GBP/USD price data derived from FXCM's price servers from 2005-2015.
Very quickly, you can see GBP/USD pip value varies significantly by time of day. On average, the pound was five times as volatile between 4:00 and 5:00 am as it was between 11:00 pm to 12:00 am.
Traders are generally more profitable when markets are less active.
How can you try to take advantage of these patterns? One way may be to mirror the simulated time-sensitive performance of the GBP/USD and trade like the straightforward range trader.
Let's backtest it. Using an RSI strategy, we buy and sell when GBP/USD crosses RSI lines. The 'Raw Equity' is not filtered for the time of day. The 'Filtered Equity' is filtered to off hours, between 2:00 pm and 6:00 am New York time.
Chart 10: Hypothetical Performance of RSI Trading Strategy in GBP/USD
Data source: Trading Station Strategy Backtester. GBP/USD 15-minute data from 4/1/2014-3/30/2015.
Past performance is no indication of future results, but by sticking to range trading only during off hours, the average trader would have been far more successful over the sampled period.
Of course, not all currencies are the same. The Japanese yen tends to see more volatility than its European counterparts through the Asian trading session because this is the Japanese business day.
Applying the same hypothetical strategy with and without the time filter, you can see USD/JPY doesn't play as well as GBP/USD did.
Chart 11: Hypothetical Performance of RSI Trading Strategy in USD/JPY
Data source: Trading Station Strategy Backtester. GBP/USD 15-minute data from 4/1/2014-3/30/2015.
Historically, time filters for off hours seems to us to have worked well for European currency pairs such as GBP/USD and EUR/USD.
Game Plan: Trade European currencies during the off hours using a range trading strategy.
Trade European currencies during the off hours using a range trading strategy.
We believe that traders are generally more successful range trading European currency pairs between 2:00 pm and 6:00 am New York time. Asia-Pacific currencies seem difficult to range trade at any time of day as they tend to remain fairly active during Western off hours.
Next Steps: Put these traits into action!
Trading forex on margin carries a high level of risk, and may not be suitable as you could sustain a loss in excess of your deposit.