Shares Magazine
Dec 20 2007
I have often heard trading referred to as an art. I can certainly see the truth in that. However, just as some artists start with the paint-by-number kits, so should some traders start by considering the numbers when setting up their trading plans. Numbers will help answer such questions as; What currency pair should I trade? What day is the best day to trade? What are the best times to trade? And the ever popular how much can expect to make?
What if there was a way for you to see in advance how much the average daily pip movement per currency pair was? It would certainly help you to determine which currency pair you should trade.
The average number of pips per day that a currency pair moves.
Analysis date December 12, 2007
Let me inject a small word of caution here. The GBPJPY may look like a great pair to trade due to its high average daily trading volume however this pair has managed to ravage more than its fair share of currency traders. However, take a moment to look at the chart above. This is a terrific starting point. If you are looking to trade a fairly active pair you probably wouldn’t choose to trade the EURGBP.
For the sake of argument we will choose to trade the GBPCHF. It seems to have a good trading range, not to crazy but not too conservative. But like most people, we have a job and a family and a life. So we can’t devote our entire life to trading quite yet. So we need to choose our trading schedule carefully in order to maximize our trading opportunities.
The average price movement range by day of week.
Sample date December 12, 2007.
Let’s say you can only dedicate three days a week to trading. You can use the image above to help you select the days that would have the largest trading ranges. So, let’s choose Tuesday, Wednesday and Friday to trade. You can take the weekend, Monday and Thursday off. Excellent, can you feel your trading plan coming together?
I am going to digress just a tiny bit. One of my favorite TV shows is Myth Busters. If you haven’t seen it, there is a team that takes common myths and puts them to the test, returning either a Confirmed or Busted conclusion. I have traveled all over the world talking to traders and speaking at conferences. My favorite Forex myth is that the best time to trade is 2am. I hear that everywhere I go. How can 2am be the best time to trade all over the world? Well, it can’t. I say let’s bust this myth and look at the data behind our chosen currency pair.
Trading Range of the GBPCHF by hour of the day. Time is in EST.
Analysis date December 12, 2007.
Well, as you can see from the above image, unless you are located in the US Central Time Zone this myth is BUSTED. However, this is some very useful information for us. We can determine that a good trading strategy for us may be trading for three hours in the morning, from 2 – 5 am EST. Then we can take a little break and come back to trading for another four or five hour session. This allows us to be sitting in front of our computer for a fair percentage of the potential moves.
With three small graphs we have determined that we will trade the GBPCHF on Tuesday, Wednesday and Friday. And we will only be trading about 7 or 8 hours a day. We have used the numbers to help determine what and when to trade.
There are so many other things that looking at the stats behind the currency pairs can tell you. You can look at the consecutive number of bullish or bearish bars, the average range of each bullish or bearish bar, and any number of other statistical measures to help you make the right trading decision.
So, back to my painting analogy… whether you are a master artist or just starting with the paint by number sets I would strongly suggest incorporating stats into your personal trading plan. It may help to open your eyes to what is truly going on. The stats above have been kindly made available by my friends at AutoChartist. You can find a link on the homepage of my website – www.marilynmcdonald.com