Temporal distribution of AUD/JPY low and high during a day

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Written by Forex Automaton   
Thursday, 22 April 2010 15:57

AUD/JPY is the first entirely Asia-Pacific currency pair looked at with this approach so far. You can see the difference with other pairs, as the temporal distributions for high and low are heavily dominated by the early hours of the day (Central European time).


Timing of daily high and low, AUD/JPY, 2003-2009, CET 1.1 Timing of daily high, AUD/JPY, 2003-2009 year by year, CET 1.2 Timing of daily low, AUD/JPY, 2003-2009 year by year, CET 1.3

Fig.1. Distribution of time moments when AUD/JPY daily high and low are achieved, 2003-2009. 1.1: high and low, all years added; 1.2: high only, all years separately; 1.3: low only, all years separately. The hatched bands indicate Poissonian statistical error estimates for the bin contents.

Tokyo 9 1011 1213 14 15 16 17 18 19 20 21 2223 0 1 2 3 4 5 6 7 8
Central Europe 123456789101112 13141516171819202122230
Greenwich 01234567891011 121314151617181920212223
Eastern US 19202122230123456 789101112131415161718

Table 1. Time zone conversion table. Seasonal time shifts, such as daylight saving time, may complicate the picture if the nations choose to enact them on different days, and are ignored.

Fig.1 histograms the moments of time daily extreme price levels (either low and high) are achieved. The horizontal axis is split into 24 bins, for 24 hours of the day. Bin boundaries are at 00:00, 01:00, and so on -- in Central European time. As with other forex rates, the distribution for AUD/JPY demonstrates a high degree of predictability in the times of occurrence of daily extremes.

Central Europen time is chosen for the following reason. Forex week begins, roughly speaking (since the volume increase is gradual) on Sunday 5pm and ends Friday 6pm Eastern time. It is convenient to define this week to consist of 5 full days, from 6pm Sunday to 6pm Friday New York time. When it's 6pm in New York, it's midnight in Berlin, Paris, Madrid, Rome, Geneva and Frankfurt. These cities use Central European Time or CET. Therefore, the convenience of using CET is that one gets 5 non-interrupted, full 24-hour long trading days per week. Table 1 compares four time zones including major trading centers of the world.

The vertical axis of the histogram is simply the number of times, during the period of 2003-2009, when the daily high or low occured within the speficied time bin.

As has been seen with other forex pairs, there are three major activity peaks corresponding to Asia Pacific, Europe and the US. The European and American activity patterns are characterized by more constancy. The double peak structure of the American trading session, with the local minimum around 15:00 (9am Eastern time) curiously, begins to look statistically more and more significant with every new currency pair analyzed.

A note added on January 14, 2011: one should be careful not to over-interpret the fact that the extremes of the daily range seem relatively more likely to be achieved in the first and last hours of trading. The same effect has been seen in random walk data.

The two bottom panels of Fig.1 prove that the activity pattern reproduces itself with a fair degree of stability year after year.

For the hour-scale trading system currently under development, information such as this may help improve the system performance by eliminating time intervals with little profit potential from consideration. A discretionary trader can use this information to help identify large moves happening at unusual times. Such an event may indicate a significant shift in the balance of market forces. It may serve as an advance warning, alerting the trader to a possibility of an even larger move in the same direction during the regular hours of the pair's activity.

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Last Updated ( Friday, 14 January 2011 13:29 )