fxcm-traits-of-successful-traders-guide

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TRAITS OF SUCCESSFUL TRADERS: PART TWOWhen is the Best Time of Day to Trade Forex?24 hours a day during the sampling period.The results, shown in Chart 2.3, are not good.However, once we factor in the time of day,things become interesting. Let’s say youmade a rule to only trade during low-volatilitytimes. Chart 2.4 shows the same strategyover the same time window, but the systemdoes not open any trades during the mostvolatile time of day, 6 AM to 2 PM EasternTime (11 AM to 7 PM London time). Thedifference is dramatic.By sticking to range trading only during thehours of 2pm to 6am, the typical trader wouldhave been far more successful during thesampling period than the trader who ignoredthe time of day.WHAT ABOUT OTHER CURRENCY PAIRS?Of course, not all currencies act the same.For example, the Japanese yen tends to seemore volatility during Asian hours than theEuro or British Pound, since that is theJapanese business day.Model Strategy: No Time Filter10K8K6K4K2KModel Strategy: Time Filtered18K16K14K12K10K0October, 20010May, 2011 October, 2001May, 2011CHART 2.3Hypothetical returns* w/ no time filterSource: Appendix 2.3CHART 2.4Hypothetical returns* using a time filterSource: Appendix 2.3Past performance is not indicative of future resultsPast performance is not indicative of future results17
TRAITS OF SUCCESSFUL TRADERS: PART TWOWhen is the Best Time of Day to Trade Forex?We simulated the same strategy, with severaldifferent possible time settings for the threemajor European pairs: EUR/USD, GBP/USD,and USD/CHF.Chart 2.5 shows combined results for thestrategy on the EUR/USD, GBP/USD, andUSD/CHF during different time frames (in theNew York Timezone). As you can see, usingthis strategy overnight during Asian and earlyEuro session has yielded much better resultsthan our baseline 24 hour RSI.We find that the same time filters work verywell for the EUR/USD and USD/CHF, as theyare closely correlated. The filters also workfairly well for the GBP/USD. You should rangetrade these currency pairs during the 2 PM to6AM time window.Unfortunately, as Chart 2.6 shows, ouroptimal time window does not work well forAsian currencies.Time-Filtered RSI Strategyon European CurrencyPairs15K10K5K0-5K-10K-15KTime-Filtered RSI Strategyon Asian Currency Pairs0-10K-20K-30K-40K-50K-60K-20K05’ 06’ 07’ 08’ 09’ 10’ 11’-70K05’ 06’ 07’ 08’ 09’ 10’ 11’RSI Base 16:00 - 06:00 14:00 - 06:00 20:00 - 03:00 17:00 - 03:00CHART 2.5Hypothetical returns* from an RSI strategySource: Appendix 2.4Past performance is not indicative of future resultsCHART 2.6Hypothetical returns* from an RSI strategySource: Appendix 2.5Past performance is not indicative of future results18
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