It can be hard to work out the best time of day to trade the FX markets, not least because the decision is dependent on the type of strategy you use. But through research, we have some idea of when retail traders may perform the best.
Data from 12m real trades were collated, and it was found that traders performed best between 5am and 10am GMT. Around these key points of the day, 53 per cent of trades generated a positive return. But when the New York session started around 11 am UK time, profitability fell to 46 per cent. There was a pattern of traders being more likely to lose as the New York session began.
Volatility may be the main reason. For example, the hourly euro-dollar range at 1pm has been 42 pips over the last 10 weeks, compared with an average volatility of 20 pips before midday. This doubling of volatility is understandable, as money flows from Europe meet flows from the US, resulting in a battle over which will dominate.
As volatility builds up, so will the likelihood of getting stopped out prematurely. This will hurt retail traders in particular, as they tend to have remarkably tight stops. Indeed, the norm could be a stop as narrow as 20 pips. Working with a wider stop loss and lower risk can be a solution, as this may give more space for the trade to breathe and be less affected by markets’ random nature.
Another explanation is the use of range bound trading systems. We performed a simple test using the Classic RSI Indicator, excluding the busy period of the markets. The results speak for themselves. Avoiding the busy period can be a good idea.
For more on the results and this topic, see http://bit.ly/CityAM30
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