EURUSD Market Guide and Volatility Analysis WHITE PAPER

Transcription

1 EURUSD Market Guide and Volatility Analysis WHITE PAPER

2 Contents Introduction... 2 Basic Market Information for EURUSD... 3 TradeStation Symbol Information... 3 NinjaTrader Symbol Information... 3 Price Increment, PIP Value for EURUSD... 3 Trading Hours and Expiration... 3 Understanding the Forex Quote... 4 Volume Comparisons for EURUSD... 5 Average Annual Volume Comparison on EURUSD... 5 Average Intraday Volume for EURUSD... 6 Market Movement and Volatility... 8 Average Daily Movement by Year... 8 Average Movement by Quarter... 8 Average Hourly Movement TradersHelpDesk s Trading Approach P A G E

3 Introduction Unfortunately for traders, if they are looking to trade a new market or are just getting started in trading, there is no single one place to find the market information they need to begin trading. Instead, traders are forced to seek out all the pertinent and intrinsic details for the market they are looking to trade. For example, what are the price increments, pip values, liquidity, and daily movement for a particular market. Quite often, the result is the trader spends hundreds of hours to find all the little bits and pieces of information they need to make an informed decision as to whether a market is conducive to the trader s applicable trading style. The purpose of this White Paper is to capture, in concise detail, the essential information that traders need to make an informed decision as to whether the EURUSD is a market conducive to their trading style and approach. The following components are identified in this White Paper: Symbol for both the continuous contract and current contract for both TradeStation and NinjaTrader Price increment size and current pip value Daily Average Movement from High to Low, broken down by quarters and based on the previous few years of data 60 Minute average movement from High to Low based on the previous two years of data Daily Average Volume broken down by quarters and based on the last ten years of data 60 Minute average volume based on the last two years of data By utilizing the information provided in this White Paper, traders can now identify: Identify which months are most active Identify which months are less active Which hour of the day provides the most volatility Which hour of the day is the least volatile Which hour of the day has the most volume (greatest liquidity) Which hour of the day has the least volume (less liquidity) Traders, analyzing all the information presented, can then make an informed decision as to whether the EURUSD is the most lucrative or conducive market for their particular trading style. Please note that all times in this White Paper are based on New York time. 2 P A G E

4 Basic Market Information for EURUSD TRADESTATION SYMBOL INFORMATION The EURUSD symbol for TradeStation is EURUSD. NINJATRADER SYMBOL INFORMATION The EURUSD symbol for NinjaTrader is $EURUSD PRICE INCREMENT, PIP VALUE FOR EURUSD Unlike the indices or futures market, spot forex price movement is measured in pips. Although all forex symbols now show an extra decimal number referred to as a pipette, price movement in the spot forex symbols are based on one whole pip movement. While pip calculations fluctuate as the currency values move, the current value for one pip in movement for the EURUSD based on trading one full contract ($100,000 lot) is $ Depending on your broker, typical contract sizes for the spot forex markets are: Micro Lot - $1,000 Mini Lot - $10,000 Full Lot - $100,000 TRADING HOURS AND EXPIRATION Spot forex does not have contract expirations. However, a position is considered to rollover if held after 5 pm New York time. The trading session times run from 6:00 pm to 5:00 pm the following day. The individual opening sessions for the major Stock Exchanges around the world are (Shanghai has been included because within the last year it has greatly influenced the markets): New Zealand Stock Market 10 am NZST Australian Securities Exchange 10 am AEST Tokyo Stock Exchange 9:00 am JST Shanghai Stock Exchange 9:30 am CST Frankfurt Stock Exchange 8:00 am CET Swiss Exchange 9:00 am CET London Stock Exchange 8:00 am GMT New York Stock Exchange 9:30 am EST All times provided above are in the country s local time. 3 P A G E

5 UNDERSTANDING THE FOREX QUOTE When trading forex, the quotes are given in pairs because whenever you are trading forex, you are simultaneously buying one currency and selling another. The first currency (first three letters) is referred to as the base currency and the second quote (last three letters) is referred to as the quote currency. Most forex brokers separate the base currency and quote currency by a slash ( / ). For example, the quote for the EUR/USD is below. The Euro is the base currency and the US Dollar is the quote currency. If you are buying the EURUSD, then you are buying the Euro and selling the US Dollar. Or if you are shorting the EURUSD, you are selling the Euro and buying the US Dollar. When trading spot forex commissions are not charged. Instead, traders are charged the current pip spread that is in effect at the time of entry and exit. In the quote above, the number 20 is the current pip spread for the EURUSD which is representative of the difference between the Sell and Buy price. In this case, the market is closed which is why the pip spread is showing as 20 pips. Although the pip spread fluctuates from moment to moment and is dependent on the forex broker, the average pip spread on the EUR/USD is about 1 to 2 pips. Also, the pip spread fluctuates in relation to the market volatility or lack thereof. As shown above the pip spread on the EURUSD is higher than most because the currency is more volatile than others. Most of the major currencies will (AUDUSD, EURUSD, GBPUSD, USDCHF, USDCHF, USDJPY) typically average less than three pips on the spread (and you will see in later reports that the volatility is lower than when compared to the EURUSD or other forex pairs). Also, the actual pip spread is dependent on the forex broker. While some forex brokers may advertise a low pip spread, their order execution may lag more than forex brokers who have a higher pip spread but faster order entry execution. Note also that the pip spread will increase dramatically at market openings and during high volatile market reports. Additionally, if a trader maintains a position overnight, then interest on their currency position is either deducted or paid based on the two different currencies and the two different interest rates associated with each. Since the interest rates are based on the broker and not the Central Bank rates, calculating the interest rates is not feasible in this report. Traders should investigate further with their respective brokers for the interest calculations on the currency pair they are trading. 4 P A G E

6 AVERAGE ANNUAL VOLUME COMPARISON ON EURUSD Volume Comparisons for EURUSD Volume identifies how liquid a market is. In other words, the higher the volume number, the easier it is to get in and out of the market. However, since there is no central data repository for spot forex, there are no actual volume numbers. As a substitute tick count is used as a supplement for trading volume. If you are setting up a forex chart in TradeStation, you will need to set the option, For volume, use to Tick Count. Otherwise, no volume will be displayed on the chart. The first volume analysis is the Total Annual Volume per Year for the last few years. This study identifies if volume is increasing or decreasing in the instrument overall. The chart below shows that the EURUSD was significantly increasing in volume through From 2012 to 2014, volume decreased, only to resume increasing in ,000,000 Total Volume By Year 25,000,000 20,000,000 15,000,000 10,000,000 5,000, A comparison of the Average Daily Volume by Year also shows the same patterns as the Total Volume by Year, that liquidity decreased after 2011 but is now beginning to increase again. 5 P A G E

7 Average Daily Volume by Year 120, ,000 80,000 60,000 40,000 20, One thing that is definitive is liquidity is returning to the EURUSD. AVERAGE INTRADAY VOLUME FOR EURUSD Is there sufficient liquidity to trade the EURUSD 24 hours a day? Depends on the number of contracts the trader is trading. As the chart below shows, the highest liquidity is during the London and US sessions. However, a trader could potentially trade a smaller number of contracts during the other sessions. Please note that the first column in the table below shows the ending hour for each 60 minute bar. For example, the 9am Ending 60 Minute Bar encompasses the volume measurement from 8:01 am to 9:00 am. 6 P A G E

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9 Market Movement and Volatility Market volatility is a measurement of the actual price movement from high to low in a given period. The higher the number, the more volatile a market is. This can be good or bad depending on the trader s type of experience and the timeframe that are prefer to trade. AVERAGE DAILY MOVEMENT BY YEAR The chart below shows the Average Daily Movement in Pips by Year for the EURUSD. However, contrary to the volume studies, the most volatile year for pip movement was Additionally, although in other currencies the average daily pip movement is significantly increasing, the EURUSD is still struggling to increase in volatility Avg Pip Movement by Year AVERAGE MOVEMENT BY QUARTER In addition to the average daily movement in pips, a comparison of Average Movement by Quarters is also beneficial. The chart below shows the average range of movement for each quarter in pips. The quarter with the most movement is from October to December. The quarter with the least movement is July to September (which coincides with vacation time in Europe). 8 P A G E

10 Avg Pip Movement by Quarter Qtr 1 Qtr 2 Qtr 3 Qtr 4 The significant decrease in volatility during July to September could potentially have an adverse effect on a trader s entry and exit strategy. 9 P A G E

11 AVERAGE HOURLY MOVEMENT The Average Hourly Movement is shown below. The first column identifies the ending hour of the bar that encompasses the market movement. For example, the 9am ending 60-minute bar measures the price movement from 8:01 am to 9:00 am. Overall the most volatile month is January. From the chart below, it is evident that the most movement is during the London and US sessions with Asia having the least volatility. The table shows that there is a slight decrease in volatility during the July to September months. During these periods traders may want to change their trading plan to reflect a lack of volatility, which could affect their trading styles. 10 P A G E

12 TradersHelpDesk s Trading Approach One of the reasons that I prepared this White Paper was because, at one time, I was a beginner trader. Knowing which market to trade, what stop to use or even where to set a profit target was a struggle. While there was a prevalence of clichés, there were no resources that actually gave the numbers for new traders to start their journey with. Instead, as traders, we had to seek out the knowledge and quite often we simply went with whatever our guru told us. After discovering that most gurus relied on gut instinct, I set about to put actual numbers to the different markets in hopes that it would make a difference in my own trading and that of others. By identifying the volatility and liquidity, traders can actually see the results of high frequency trading and identify trading plans that work for different market environments. For example, my entries are always at the lowest point of risk which is the ATR that is built into my Trend ATR and Congestion Dot indicator. However, the question remained as to where to set a stop. By analyzing the tables from above, traders can offset the ATR by ten percent of the daily range or the hourly range. Additionally, I recognized early on that markets move differently in the last quarter versus the second and third quarter (experience with trading these time periods). By utilizing the reports, I could pinpoint exactly when the slowdown occurred and change my plan accordingly. For example, during high volatile months I use three charts to identify setups. During low volatile market periods, I only use a two chart setup. This prevent being stopped out in noisy markets due to a lower volatile trading period. The only two remaining challenges were to identify when markets were turning and when the market makers were secretly buying the low or selling the high. I revised the typically ADX to easily identify when the markets were overextended so I could capitalize on the reversals. And I developed a revolutionary Directional Volume indicator that pinpoints the exact point when the market makers are discreetly buying the low or selling the high. The combination of these unique indicators, especially combined with scanning capabilities, produce a system that allows traders to easily identify their trade entries based on a minimum risk to reward ratio of 1 : 2 (meaning for every dollar of risk the trader makes at least two dollars). There was only one remaining issue traders tend to miss the great trades or enter bad trades because they are simply bored. To overcome this issue, I incorporated multiple alert systems within the charting and scanning programs so traders receive alerts via their smart phone and/or . Now traders have the ability to take control of their trades because they no longer have to sit idly by and wait for a setup. Instead, they simply make sure their trading platform is running and they receive alerts whenever a trade is setting up no matter where they are or what they are doing. The fear of missing a trade is simply a thing of the past now. To find more about the TradersHelpDesk indicators and methodology, visit our website at or me directly at gm@tradershelpdesk.com. 11 P A G E