The FX market is open 24 hours a day which is attractive for many traders but it is important to understand there are times of the day which are easier to make profits than others.
Understanding how the FX market changes through a 24 hour period can help you to find profitable trading opportunities and reduce the amount of time you trade each day.
There are two ways to become a more profitable trader with time of day analysis:
Method 1: Analyze your trading records
The first step in finding profitable times to trade FX is to analyze your own trading performance. Through analyzing your profit and loss at different times of the day you can easily find ways to improve your trading performance.
Step 1
Stop trading when you lose money
Reducing your losses is the quickest and easiest way to improve your performance. If you are consistently losing at the same time of the day you need to change your trading strategy or stop trading that time period.
Try to find reasons why you are losing during that time of the day.
Reasons might be:
– Volatility is too low
– Volatility is too high
– Using a trend trading strategy when the market range trades during that time of day
– Using a range trading strategy when the market range trades during that time of day
– You can not focus on trading 100% of the time due to other commitments.
After changing your trading strategy start trading with a demo account or small real position until you become profitable. Once you are profitable again then slowly increase your position size.
If you are unable to find a profitable strategy it is best to stop trading that time of day and concentrate on trading the times of day when you are profitable.
Step 2
Make more money when in your best times
One of the big attractions of trading is you can make more profits by simply increasing your position size. Once you know what time of day you are most profitable, slowly increase your position size.
Initially increasing your position size can result in worse performance as it is more stressful. If you struggle to follow your trading plan when trading a larger position return to trading your normal trading position. After practice you should be able to follow your trading plan without worrying about your position size.
Method 2: Analyze the market
Step 1
Understand the market`s volatility
The market`s volatility changes greatly throughout the day. It is usually easier to trade when the volatility is high as there are more trading opportunities. Another advantage of trading when the volatility is high is your target takes less time to get touched so it can be easier to follow your risk management rules.
Understand trend vs range markets
Certain times of day have different characteristics which is important to understand in order to make profits trading FX. Usually when a market opens the market`s volatility can be high and there are good trend trading opportunities. Alternatively 2 hours after a market opens there can be a reversal of the initial move which means a range trading strategy will be profitable.
Analyzing how the market changes from trend to range trading conditions throughout the day can help you find profitable trading opportunities. Over time you will reduce the time you need to trade as you will have a good understanding of when you should trend trade or range trade.
Final advice
Time of the day analysis can be very helpful to improve your trading performance. It is best to find ways to reduce the times of day you trade so you are more focused on trading when it is easiest to make a profit. Regular analysis of your trading records and market is important to being a profitable long term trader.
