Hi guys,
I came across this really nifty tool today,
http://www.forexticket.biz/en/tools/02-01-volatility
Now sure, you could quantify this info yourself in Excel but this tool does it for free very quickly! I wanted to show some examples of its usefulness.
What I've done is set the lookback of the tool to 52 weeks and taken a bunch of screenshots of the 'hourly volatility' pane across a few different pairs. The tool breaks down all hourly bars across the last 52 weeks and averages them across time. So it will show the 'average' 00:00 GMT bar across the last 52 weeks in terms of volatility.
Here is GBPUSD. You can see there are two distinct and almost equal in magnitude volatility peaks around the London and New York open.
Here is AUDUSD. You can see there are three distinct and almost equal in magnitude volatility peaks around the Australia/NZ open, London open and New York open.
Here is EURJPY. You can see the volatility peaks are very similar to GBPUSD, but with higher vol during the Australian open and overlapping Tokyo session.
Lastly here is EURUSD. You can clearly see the most distinctive peak in volatility is around the New York open.
How is this information useful? The most obvious thing for me is that it shows you what you should be trading depending on your natural hours.
Trading EURUSD in the morning, I shouldn't expect much! No point looking for 10 pips on a 5 min breakout if on average there aren't that many in the hour I'm trading! But if I trade AUDUSD I can expect similar volatility on the open to the volatility of the much more liquid London and NY session opens. 10 pip targets are much more likely to be effective on this pair in this time.
Same applies for EURUSD around the London open. I can expect more volatility than the morning open, but if I want the higher volatility levels it would be wiser to trade EURJPY or GBPUSD, right? Trading GBPUSD around the London open gives me the highest volatility for the pair for the day, without having to wait for New York to open. Meanwhile if I wanted to trade the highest volatility session for EURUSD I'd have to wait for NY to open.
The charts also show that despite various diurnal cycles in the forex, NY session (since it overlaps with London) open is the undisputed volatility champion. Based on historical volatility, you can expect consistently high volatility around this time.
So to clarify how this is useful: I'm not looking at EURUSD in the morning, I'm not looking at AUDUSD when London opens and if I'm looking to trade the NY open then most pairs will work well but those with 'fundamental' overlap with the London session should do best. e.g. EURUSD or GBPUSD. When the session comes on and I've picked the pair, targets and stops will be adjusted to reflect the session/pair volatility.
I came across this really nifty tool today,
http://www.forexticket.biz/en/tools/02-01-volatility
Now sure, you could quantify this info yourself in Excel but this tool does it for free very quickly! I wanted to show some examples of its usefulness.
What I've done is set the lookback of the tool to 52 weeks and taken a bunch of screenshots of the 'hourly volatility' pane across a few different pairs. The tool breaks down all hourly bars across the last 52 weeks and averages them across time. So it will show the 'average' 00:00 GMT bar across the last 52 weeks in terms of volatility.
Here is GBPUSD. You can see there are two distinct and almost equal in magnitude volatility peaks around the London and New York open.
Here is AUDUSD. You can see there are three distinct and almost equal in magnitude volatility peaks around the Australia/NZ open, London open and New York open.
Here is EURJPY. You can see the volatility peaks are very similar to GBPUSD, but with higher vol during the Australian open and overlapping Tokyo session.
Lastly here is EURUSD. You can clearly see the most distinctive peak in volatility is around the New York open.
How is this information useful? The most obvious thing for me is that it shows you what you should be trading depending on your natural hours.
Trading EURUSD in the morning, I shouldn't expect much! No point looking for 10 pips on a 5 min breakout if on average there aren't that many in the hour I'm trading! But if I trade AUDUSD I can expect similar volatility on the open to the volatility of the much more liquid London and NY session opens. 10 pip targets are much more likely to be effective on this pair in this time.
Same applies for EURUSD around the London open. I can expect more volatility than the morning open, but if I want the higher volatility levels it would be wiser to trade EURJPY or GBPUSD, right? Trading GBPUSD around the London open gives me the highest volatility for the pair for the day, without having to wait for New York to open. Meanwhile if I wanted to trade the highest volatility session for EURUSD I'd have to wait for NY to open.
The charts also show that despite various diurnal cycles in the forex, NY session (since it overlaps with London) open is the undisputed volatility champion. Based on historical volatility, you can expect consistently high volatility around this time.
So to clarify how this is useful: I'm not looking at EURUSD in the morning, I'm not looking at AUDUSD when London opens and if I'm looking to trade the NY open then most pairs will work well but those with 'fundamental' overlap with the London session should do best. e.g. EURUSD or GBPUSD. When the session comes on and I've picked the pair, targets and stops will be adjusted to reflect the session/pair volatility.
