Comparing Same Intraday Time Periods of FX Sessions

I recently read an article by Brett N. Steenbarger at tradingeducation.com about "horizontal analysis". Here is part of the article:

Most traders, myself included, tend to view the market vertically. That is, if we build a spreadsheet, we array the recent data on top of the prior data and create all sorts of statistical manipulations that aggregate the data from bottom up. Vertical market analysis is problematic, however, in that it runs into the aforementioned challenge of stationarity.

When I created the tables above, I was looking at the market horizontally. Instead of putting each day’s data on top of the previous values, I placed it to the right. That means that the rows of the spreadsheets represent common time periods—in the case of the data above where we looked at ranges, these were thirty-minute periods. Viewing data horizontally tells us some interesting things, in part because there is greater likelihood of stationarity across sixty common time periods than across sixty adjacent, different periods.

Let me give a concrete example. Suppose during a given five minute period of the day we see 800 ES trades being placed. Is that a meaningful volume or not? If the 800 trades occur during the opening half hour of trading, the volume is not significant. On the other hand, 800 trades in a five minute period that occurs between 11:30 – 12:00 ET would be close to the top 5% of all values for that period. The average volume in early morning is actually a mini buying or selling climax around noon. And, as we shall see later, this is an important piece of information.

Here’s another example: Suppose we break out of a hour-long range and make a new high or new low on the ES. What are the odds of the move continuing in its breakout direction? If you aggregate all similar breakout moves through the day, you’ll get a very fuzzy reading. About half the breakout moves will continue; half will reverse. But if you analyze the market horizontally, you’ll find that breakouts behave differently early in the trading day than later on. There are many more false breakouts as you move on through the day. Why? On average, the reduced volume/volatility of those later hours makes it more difficult to power new market trends.

But wait! If the odds and extent of breakout moves is different from one hour to the next, then that means that chart patterns will vary from one period to the next. That also means that oscillator readings—what constitutes overbought and oversold—will similarly vary.

Here’s something to try: If you want to analyze the market by chart patterns or indicator readings, switch your analysis from vertical to horizontal. Look only at similar time segments from a stationary lookback period in the market and see what the market has done when the patterns or readings have been similar to those observed currently. If you see a breakout from a two-hour range that occurs at 9:45 ET, look at all similar breakouts that have occurred in the first half-hour of trading. The chances are good that your findings will be less fuzzy—and may even reveal a tradable edge.

So I was thinking, instead of Excel, using MetaStock charts to look at intraday periods during the FX sessions in this horizontal fashion. I have an indicator which easily allows me to color code each FX mkt session, US/European/Asian, and the overlaps, and the plan is to stack the same time period charts on top of each other, using both my monitors so I could look at, say, 10 charts at a time of the US session from 8:00am to 12:00pm (est, the US opening and the overlap w/the Euro session) and compare and contrast them this way. As I recall, when I was studying stocks, one of the most important things intraday traders consider is the time period of the daily session: There's generally higher volatilty in the opening hours and morning, mid-day much less-so, then the end of the day can be very volatile, all this is common knowledge. Surely these same kind of behaviors would be present due to volume/volatility in FX as in other markets.

I know this is going to be blindingly obvious to many, if not most, this isn't meant to be a relevation, sometimes it just takes me a while to catch up. It's just occurred to me that such a study of the charts - of consolidations, breakouts, retracements - graphically, horizontally, could reveal a great deal of information about how these mkts behave intraday, day-to-day. Most interesting.

Comments (other than, "No shit, Einstein!") appreciated,
Harold

 

Believe it or not I was thinking the same thing just last week. Wondering if there was a way to compare the current volume of FX futures to the volume in the same time period of the session during n sessions in the past. As opposed to comparing it to some all inclusive MA of volume. I think the idea is certainly worth looking at.
I'm using Ensign. I looked at their web site for idea's but didn't see any thing. If anyone has a template or any idea how to accomplish this in Ensign I would love to hear about.

 

Charts please Harold.

 

I'll try to post some charts next wk.

H

 

Here's a screenshot of 6 charts of the EUR/USD, each a 24-hr chart, 15-min bars. Blue is the EUR/USD overlap, green the rest of the USD session, yellow the JPY session, red the JPY/EUR overlap, purple the rest of the EUR session. (The data is from Alpari and is 6 hours ahead of U.S. EST, which is why the USD starts at 2PM on the chart, which is actually 8AM.)

http://tinyurl.com/zfmom

TL, if you get yours up and running, please post some charts.

H

 

http://charts.dacharts.com/2006-08-18/EUR #F.png

Finally figured out how to do it, sort of.
I'm limited by the number of lines on the Ensign design your own (DYO) page to a look back period of 9 bars. I would like to make that at least 20 - 50 bars. I'm sure it can be done rather easily, I just don't know how. I may end up asking Ensign for assistance. (I just hate doing that, too much like asking for directions )

The yellow line in the volume pane is a 9 period MA of volume for THAT time of day. I only got this up and running yesterday afternoon. But I can already see where it may prove to be at least somewhat useful. At least in the context of simple Wyckoff type of P/V analysis.

We'll see, like anything else I'll dump it like a ton o' bricks if it doesn't work.