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Day Trading TimesLondon Trading Strategies,One of the themes that I keep coming across on various FX forums, and on the websites of various system vendors, is the supposed importance of favourable times of the day for day trading. The logic behind the idea of only trading at certain times of the day is that significant movements which happen at certain times are statistically more likely to produce an edge than when those very same movements happen at other, less important times. The most common times deemed to be favourable for day trading are times around the London open and the London close. In fact I have read of countless Forex London opening strategies and London closing strategies, the London opening candle breakout, the London close trade, the London closing setup etc... The list is almost endless. But can giving any special significance to trading times in the City of London really produce any edge whatsoever? The logic behind it is certainly sound, the City of London is probably the most important financial capital in the world and the London Forex session is certainly the most liquid; one could certainly argue that momentum in the London session should be harder to stop and that therefore a breakout that occurs during the London session is therefore more important than a breakout that occurs in another session due to the huge volume behind it. But the Forex market is huge and liquidity isn't normally a problem for retail FX traders, and as for momentum being more difficult to stop at certain times, I've yet to see any solid evidence that this is the actually case in practice although, like I said, the logic behind the reasoning seems pretty sound... To try and shed a little more light on the subject I am going to perform a number of tests on the GBP/USD currency pair. For the first experiment I will enter in the direction of 4 hour candlestick and then close the position 4 hours later. For the 2nd experiment I will enter in the direction of a 4 hour candlestick if the four hourly movement was at least 20 pips and close the position 4 hours later. And for my 3rd experiment, I will again enter in the direction of the last 4 hour candle and hold the position for 4 hours, but this time I will only enter if the last candlestick moved at least 50 pips. I will define the movement as the distance between the candlestick's low and the candlestick's close if the candle was a bullish candle (that is, if the price closed higher than it opened) and I will define the movement as the distance between the high and the close if it was a bearish candle. I will do each of these tests for the following London times -
The results of the experiment are as follows –
 Day Trading Times: My ConclusionMy first conclusion would be to say that the differences in employing the same trading strategy on different times was not statistically significant enough for me to be able to draw definite conclusions. Nevertheless, there do seem to be some note worthy patterns. Firstly, there was very little movement in the four hour candlestick that formed between 4am and 8am UK time, probably because neither London nor New York was trading then. When we were only taking trades where there was a movement of at least 20 pips on the 4am to 8am candle, the number of trading opportunities fell from almost one every day to around half that number, when we increased the number of pips for a minimum movement from 20 pips to 50 pips the number of trading opportunities fell to around two or three a month. I would therefore draw caution to the result of the test for trading after a movement of at least 50 pips between 4am and 8pm as the number of trades was relatively low and the result is therefore less reliable. However, when we refused to take trades unless there was a movement of at least 50 pips on the two four hour candles that formed between 8am and 4pm there were lots of trading opportunities as the market was very busy at that time and there was a lot more movement. The only other thing that really jumped out at me was the effects of entering in the direction of the four hour candle that closed at 8pm UK time - that produced a notable negative expectancy on all three tests. After giving the matter a little thought, this result actually makes a lot of sense (although I would caution the reader by saying that the results are not significant enough to be conclusive). It would seem that a breakout or large movement that happened during the day (especially during the London session) would be likely to 'stall' later in the evening when the FX market becomes quiet and there could be some merit in 'fading' the movement. There appears to be an edge in fading the day's movement, that is, betting on the movement not having the strength to continue into the night. Although the edge providing by this strategy is not, by its self, large enough to be tradable, it may be a useful component of a trading system. Thanks for reading, David. |
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