For most forex traders, the best time of day to trade is the Asian trading session hours. We analyzed over 12 million real trades conducted by a major FX broker, and we found that trader profits and losses could vary significantly by time of day. In fact, this trading style means that many of them have trouble being successful in forex because they are trading during the wrong time of day. The chart shows the profitability of traders with open positions broken down by hour of day across the five most popular currency pairs.
Those profitability statistics can certainly vary on a day-to-day basis, but the patterns are impressively stable over the course of the year. You can see that periods of strong trader performance line up with low-volatility trading hours. Traders tend to see the best results during the Asian trading session, and the chart below shows that the Euro tends to move far less through this period. To see why volatility lines up so well with performance, we need to look at real trader behavior.
If a currency has fallen and is trading at or near significant support levels, the range trader will often buy. If the same currency then trades higher and near important resistance, that same trader sells.
This can work if price is not breaking major price levels and continues trading within relatively narrow ranges. Of course that same trader would do quite poorly if price broke significantly above resistance or below support. How do we avoid the worst market conditions for this particular style of trading? The results are not good. When the period RSI crosses above 30, buy. When RSI crosses below 70, sell. Yet once we factor in the time of day, things become interesting.
This next chart shows the exact same strategy over the exact same time window, but the system does not open any trades during the most volatile time of day, 6 AM to 2 PM Eastern Time 11 AM to 7 PM London time.
The difference is dramatic. Only allow the strategy to open trades after By sticking to range trading only during the hours of 2pm to 6am, the typical trader would have hypothetically been far more successful over the past 10 years than the trader who ignored the time of day. Of course, not all currencies act the same. For example, the Japanese Yen tends to see more volatility during Asian hours than the Euro or British Pound; these are the hours of the Japanese business day.
The poor results speak for themselves. We might range trade these currency pairs during the 2 PM to 6AM time window. Unfortunately, our optimal time window does not work well for Asian currencies. This is due to the fact that these currencies are more often subject to large moves during Asia Session than the European currencies.
Many traders have been very unsuccessful trading these currencies during the volatile 6 AM to 2 PM time period. Asia-Pacific currencies can be difficult to range trade at any time of day, due to the fact that they tend to have less distinct periods of high and low volatility.
This article is a part of our Traits of Successful Traders series. View the previous installment of this series: The DailyFX Research team has been closely studying the trading trends of clients from a major FX broker, utilizing their enormous amount of trade data.
We have gone through an enormous number of statistics and anonymized trading records in order to answer one question: DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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