Time Studies

Skills are more judgmental than techniques, which can be precisely quantified. Skills take more practice, time, and experience to learn and apply effectively.

Time Filters

The author has done an enormous amount of statistical work on time filters. Some of these studies were published in the now out-of-print and privately published "Currency Trader's Companion" series. The following is a brief overview of the subject.
These are not mission-critical ideas but can help you improve your trading skills along the way. Once again—small changes can make meaningful improvements to the bottom line.

Market Opening

Officially, the FOREX market opens at 5:30 P.M. Eastern Standard Time, although different brokers react differently in different time zones. Keep in mind that over the weekend all currency pairs carry an extra premium in transaction cost. A normal 3-pip bid-ask spread during normal trading hours may increase or balloon to a 10-pip or even 20-pip spread on weekends.

Once the weekend transaction costs return to normal, many pairs exhibit high volatility because of economic influences that occurred over the weekend. The effects of these influences built up while traders were away. Analyzing a set of a number of currency pairs enhances profit opportunities. A trend frequently emerges in one direction or the other and continues until the weekend influences have been absorbed by the markets. This may entail tracking several more pairs during the early hours of Monday morning than one would normally follow. When opportunity knocks …

Market Closing

Many corporations like to clear out last-minute orders on Friday afternoon to avoid possible rollover charges and reduce the risk of holding substantial positions over a weekend. Three-day weekends exacerbate this phenomenon. This equates to increased volatility right before the market closes at 4:20 P.M. on Friday afternoons.

If you trade during the peak period of volatility, always be certain to liquidate your trades before the bid-ask spread jumps to its increased weekend range.

Time of Day

For the most part, the higher volatility periods revolve around banking hours in New York City. This overlaps only slightly with banking hours in London and Frankfurt. Another factor is the time zone in which your broker is located. Taking these three factors into consideration along with your own time zone, you should be able to determine periods of high volatility that increase risk and reward.

Day of Week

The days on which the market opens and closes have already been discussed. Other days of the week may also have special significance. For example, new interest rates are normally published on Thursday, which causes immediate changes in USD pairs.

Keep your FOREX calendar computer-side and be aware of pending news for the currencies you trade.

The Flyer

No, this is not a new trading method. I advise traders—once they have established some basic stability in the markets—to take the occasional flyer. Yes, I advised you to pick your tools and stick with them. But it is easy to get in a rut. Sometimes we need a self-push to see things from a different perspective, encourage our imagination to find new ideas, or juggle the subconscious into freeing an idea or solution tucked deep away.

If you are a scalper, try a day trade. If you use Goodman Wave Theory as your primary trading tool, try DiNapoli levels or Drummond point and line. Trade a different pair. I traded FOREX for four years and never gave a second glance at the AUS/NZD. On a quiet night, I took a flyer on it. Now, it is one of my favorite markets.

Even a different look can encourage something good. Change the scale or colors on one of your charts for a day. Pick an indicator you have never studied from your broker-dealer's platform, and add it to a chart for a week.
By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2020. Content published with author's permission.

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