Trait 3: Successful Traders Trade the Right Time of Day
Our data on trader performance shows that traders, on average, have a lower win percentage during volatile market hours and when trading through faster-moving markets. But, conversely, traders fair better when average pip movements are smaller, yielding higher win percentages. This attribute intuitively makes sense because there is a positive correlation between risk and reward. I.e., the higher the risk, the higher the reward. Or, to put it another way, if there is no risk present, it will be impossible to profit.
Thus, there is an inherent lure if the risk is present. Traders focus on the potential reward, not the actual risk. However, the risk is a genuine and present variable. There are many ways to measure risk, with one of the most popular being standard deviation or volatility.
When a financial instrument's standard deviation increases, its volatility increases, i.e., its risk increases. As such, there are critical times during a trading day when volatility will increase. For example, in the NFP release, volatility/risk is expected. Moreover, currency pairs have their unique risk characteristics. For instance, JPY volatility will respond to different calendar events than EUR or GBP.
Traders should consider the time of day because volatility increases the chance of loss. If the volatility is extreme, the loss suffered will burden recovery (refer to table 1).
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