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  #1672 (permalink)

Legendary Market Wizard
Berlin, Europe
Trading Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker/Data: Interactive Brokers
Favorite Futures: Keyboard
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Different markets have different trading hours and different "activity periods" (i.e., what hours on Globex they are most active). For instance I trade mainly soybeans (ZS) and I use an IB of 15 minutes. This seems to work best although it may be changing because the CBOT changed the pit hours of of the grain complex a couple months ago. I'm going to start trading the euro so wanted to get some opinions.

For me it comes down to what period of time works best to give one an understanding of what's going on as the market opens up and settles the initial orders that have come into the market.

If you want to trade breakouts, you want to make sure that volatility rises, when you trade them. Volatility can be measured via the average ranges per time unit. Let us first have a look at the average 30-min ranges per weekday. The chart below uses a session template which divides the day into three sections

- Asian Session 5:00 PM Central - 1:00 AM Central
- European Session 1:00 AM Central - 7:20 AM Central
- US Session 7:20 AM Central - 4:00 PM Central

The ranges are the average ranges over the last 20 weeks. For Monday the average 30-min ranges of the last 20 Mondays are plotted, etc.. The red bars shows volatility which is higher than usual. Those are actually the period where it is interesting to trade breakouts.

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Asian Session: The only time where you may expect a range expansion is Sunday between 5:00 PM and 6:00 PM
European Session: I have used 8:00 AM CET (Frankfurt) as the Europen open, volatility already picks up considerably (orange bars), but the market only drives at full speed after the London open at 8:00 AM BST (2:00 AM Central), so you could either place your opening range between after the Frankfurt or the London open.
US Session: The selected start of the US session at 7:20 AM Central matches well with the rise in volatility on Mondays, Tuesday, Wednesday and Friday. However, on Thursdays, the volatility picks up one hour earlier,
due to news releases. An experiment with an earlier opening range on Thursday would make sense.

To locate the breakout points for the opening range breakout trades, I use a statistical measure, which I call noise. Noise is the average of the failed moves over the last N days. This is how it is calculated for each of the sessions or the entire trading day:

Move shifting value : The larger of (High - Open) and (Open - Low)
Current session noise : The smaller of (High - Open) and (Open-Low)

The noise bands calculate the average range of those failed moves over the last M and N day. Shown below for the US session.

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