How do you trade during different hours of the day?

[DLADLER]

I just posted the following entry to my blog and thought it might be of some value here on this forum and additionally we might open the topic for discussion here...

How Do You Trade During Different Times of Day?

How do you trade during different hours of the day, and how does your P/L differ as the day progresses? Do you know? Have you identified certain hours or parts of the day when you are generally profitable, and others when you are not? Finding out such information can be a very powerful discovery, and successfully modifying your approach based on what you find can have immediate results on your bottom line.

If I look back at one week of my trading during which I traded everyday from 8am to 3 pm, I'll have 5 days of data to look at for some pattern. Let's just assume that my Hour of Day P/L analysis of the past 5 trading days shows that in every one of the 5 days, my losses were greatest from 8-10am. Well, that's intriguing, but may not bear much significance, statistically speaking.

Generally in small data sets (sample sizes), even very large relations cannot be considered reliable (significant), whereas in relatively large samples, much smaller relations between variables will be significant. Point being, the more data we have to measure (or trading days, in this example), the more significant our findings will be.

I'd be very happy if I were able to find out that out of the last 2 months (40 trading days), on 34 of the 40 days, I've lost money from 8-9am. Of course I wouldn't be happy about consistently losing money during that time of day, but rather I'd be pleased to have discovered this. Why? Because I can now do one of two things, both of which will likely improve my P/L: I could stop trading during this time altogether, or I could look into this hour in more detail and compare it to other hours to see exactly what I am doing differently and what is causing the losses from 8-9am.

The first choice above has its limitations. For example, if I stop trading altogether from 8-9am who's to say 9-10am wouldn't now become the new losing hour? Maybe it's more an issue of momentum, rather than how my system is interacting with the market during that specific hour. I want to find out.


(SEE ATTACHED DOCUMENT FOR IMAGES)



In this example I've created a bar graph showing average P/L per trade, per the hour of day, shown in the top graph for only losing days, and the bottom graph for only winning days. The charts show data from 54 trading days (33 winning days and 21 losing days).

Creating one graph for each type of day allows me to sort the data depending on the outcome of the day, and in turn makes the analysis more specific. I'm able to see what generally happens during winning days, and what generally happens during losing days.


-The first thing I notice here is that on my winning days I am getting a good start to the day and generally trading well in the first 3 hours. As the winning day continues, each hour I’m able to keep my losses smaller than they are in the corresponding time frames in the losing days.

-I see that losing days generally get off to a poor start and tend to get worse as the day progresses, with the exception of the 2:00 hour.

-The 2:00 pm hour has been a good hour for me consistently. I might look into this in more detail and look at different measures in this hour compared to all other hours grouped together so I can understand why I am generally profitable at this time of day.

-What’s interesting is that in looking at the bar charts, my P/L trend looks very similar in both my winning days and my losing days: I get progressively worse (in terms of P/L) as the afternoon approaches and continue to suffer losses, despite my averagely good performance during 2:00-3:00pm.

- The main difference seems to be that I start the day well in my winning days and generally keep my losses smaller throughout the day.




© Copyright 2007 David Adler
All rights reserved

All analysis generated with the TraderDNA Analyzer.

[Bfbusa]

Hi DLADLER,

I would say that I am more aggressive trader, ( lot size ) in the first hour of trading. I find that volume is larger and momentum is stronger. I still trader other times but have a higher degree of caution because , in my experience, have had a tendency to give back my profits in the afternoon.