A study manufactured by FXCM shows that its speculators are having difficulty to be successful the Foreign exchange market. According to Rodriguez and Shea, authors of the study, this is down to the fact that traders are placing their trades at the wrong time interval.
Most Forex traders use range trading strategies. They open long positions in a market when technical signals show it is in an oversold state, and open short positions (or close existing long positions) when these signals point to overbought conditions. These strategies depend on support and resistance levels that are tougher to wreck when there's less volatility in the market. On occasions of high volatility, these levels are rather more easily broke making range traders lose money.
Forex pairs involving EU and/or Northern US currencies like the EUR/USD, GBP/$, and USD/CHF are rather more actively traded in the European and the US sessions. Industrial info affecting those pairs is typically reported during those sessions and the biggest FX traders, including banks, trade during that time. This means that volatility will be higher.
According to the study, volatility for non-Asian currency pairs, as the EUR/USD, GBP/Bucks and USD/CHF is reduced between 7pm and 11am, and range trading strategies will perform very well inside that bracket. By other side, and against what many might be thinking, Asian currency pairs are not exactly a good target for range trading. During the Asian session, volatility is high, as predicted; during the EU and the US sessions, volatility can be still high, at least for the primary currency pairs.
Spread betting traders have some lessons to learn from FXCM’s study. All trading strategies need certain circumstances to work and we should not try to fit them outside their world. Range trading is a tactic that makes an attempt to explore oversold and overbought markets, depending much on SR levels. Volatility should be relatively stable for these to work. At times in which information is continuously flowing, it is extremely improbable a market will stay inside a tight range. If you want to range trade, then have your coffee handy and make preparations for a long night of work.