In last week’s review post, I shared a graph that showed the cumulative performance (in units of risk) by entry time. Looking at the graph it becomes immediately obvious that the afternoon trading has been more profitable than the morning trading. I have plotted the graph again, this time plotting the lines separately for each of the last four weeks:
I then drilled into the data further by classifying the trades into my two trading strategies:
The above table implies that the reversals actually works rather well in the afternoon and works terribly in the morning. And that there is no difference between the sessions for the continuation strategy.
What could be the reasons for the afternoons being more profitable than the mornings?
- Market conditions – the nature of the price movements, and levels of volatility, in the afternoon sessions are more suited to my trading style than the mornings. This could be a permanent or temporary thing. Given the markets’ fluid state, it’s more likely to be the latter.
- Price Information from London session – by 1pm London time , there are definite contextual points provided from the active London session – highs, lows, volatility, trend – I can use this information in entering and managing the trades in the afternoon – I don’t have this benefit when trading the London session.
- Technical Feel – I could be more competent in the afternoon by virtue of having watched the charts all morning and ‘getting a feel’ for the market. I need to pay for that information by executing trades in the London session.
- Trader’s physical & mental state – am I still too tired in the mornings to interpret the market properly and/or that I am more influenced by emotions in my trading? Naturally I would have thought the afternoons present a great threat of lack of concentration and tiredness, but who knows!
Skipping London Session -> Increased Quality of Life -> Better Trading Performance?
Theoretically speaking, if I skipped the London session and traded only the New York session, I would have more chance to hang out with friends, more sporting opportunities & be able to head to Ronnie Scotts jazz club on Monday nights. Given that “trading profits come from happiness, and not the other way around” [Paul Tudor Jones, + click here for more quotes from him], that should indirectly positively impact my trading performance! I am sure Paul Wallace (one of my mentors) would agree 100% on this.
It would probably also help me to avoid the constant state of tiredness I have found myself in over the past few weeks.
Staus quo for now – will keep on trading both sessions
After reviewing last week’s yet again, I spotted various areas that can be improved. Such refinements should positively impact trading performance over larger batches of trades. Thus, I think for now, it is premature to make a decision on whether to forego the London session and focus more on the US/New York session – hence I will continue to trade both, but I will keep a good eye on whether performance differences between the two sessions continue to remain.
Thus, although I am really keen to find some great insights from drilling into and pondering over this data, I think the more important, and more effective approach for now, is to iron out clear issues that I can spot in my setup selection and in the way I manage my open trades.