Often traders don’t realize when their trading impacts their decision making and possibly their performance.
Maybe you tend to trade better first thing in the morning, versus trading in the evening.
Perhaps you sneak a trading session in during lunch when you are unfocussed and hungry.
These are all examples of how the time of day you trade could be having a big impact on your performance.
To try and identify some of these strengths and weaknesses in your trading strategy, you can use the Performance Analytics platform inside your FOREX/City Index trading account.
Take this example- a trader is losing money. He has a weakness in trading in the morning, and a strength in the afternoon. This is a key area for him to focus on if he wants to try to improve his performance.
Below are three explanations for why certain periods of the day tend to be better or worse for individual traders:
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The Markets
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External environmental factors
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Trading energy
The Markets
Market nuances are in constant flux, and different styles of trading are more suited to different market conditions. Take the simple case of the market opens and closes. The change in pace, and your experience levels in these markets might also be an issue for you.
For example - If historically, your trades have performed better from 9am- 10am, it could indicate that there is a correlation between the US stock market opening at 9.30am and your performance. The volatility of the market may suit your knowledge and style, this information may potentially provide an opportunity to improve your trading strategy. However, market conditions can change, and traders should always monitor open positions for changes in market conditions, that may adversely affect their trading plan. Past results cannot guarantee future performance.
External environmental factors
Is your morning very busy with other stuff, and afternoon more relaxed and easier to focus?
Successful traders don’t just study their trading behaviour; they look at everything going on in their lives.
You need to take a step back from your trading and examine other factors in your environment that could be indirectly impacting your choices.
If you know your mornings include a rush beating the traffic, or your afternoons are sluggish because you eat a big lunch, you might want to look at how you can improve trading outcomes during that time period. Maybe take a walk after lunch or work from home early in the morning to allow you to trade with a clear head.
Creating good choices and habits isn’t just about motivation and willpower. By tweaking your environment, you can create the foundation to make good trading decisions.
Trading energy
Does it take you a while to warm up to the market action? After a lot of trading, is it time to stop earlier than you normally do?
Look at key metrics in your trading history that will show you where your strengths and weaknesses are. Check out the first trade of the day, the time between trades, and your losing streaks. When is your energy at its peak, and when is it lowest?
Your energy may directly effect your trading choices. Like the muscles in our body, our brain tires when we have to use it a lot. Think of it like starting with a full glass of water each morning, and with each decision we make during the day, we take a tiny sip of water. We then have to make hundreds of decisions during the day (whether to snooze, what to wear, which coffee to get, how to get to work, which email to answer first, and all that is before 9.30AM!), so by the time bedtime rolls around, we are often left with an empty glass.
This mental fatigue can cause us to make ill-informed and rash decisions. If in the morning when we choose what products to trade in, we are more likely to weigh up the pros and cons and make an educated, rational choice. By the end of the day, the mental effect of choice after choice has tired us, and so we often take shortcuts with our decision-making process, or just stick with what we’re already doing. Conversely, it is possible for some people, that evenings may be a more optimal time to trade, they may be more relaxed and clearer minded, while in the mornings they are preoccupied with the concerns of the day ahead of them. The time of day may be different for each individual trader.
Throughout the trading day, make sure to take breaks when necessary. Hit pause on what you are doing and come back to your trading when you’ve had a chance to reset. Even small 10minute breaks can reset your energy and stop you from making reckless decisions.
Summary
The time of the day in which you are trading can impact your returns. This can be because of:
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The Markets
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Your trading environment
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Your energy levels
Becoming aware of when during the day you tend to be strongest and when you tend to be weakest, will allow you to pause and reflect on both your positive and negative behaviors. Possibly consider curtailing trading at times when you have identified weakness, and consider continuing trading when you are doing well. The idea is to choose times when you are mentally focused and/or when market conditions tend to be conducive to your trading strategy, to improve your trading strategy.
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