4 Patterns for Forex Profitability

13

What makes a forex trader profitable? Looking at a wide array of real data, four patterns are found. Timing is critical. The best time to trade is not necessarily what you thought it would be, and it certainly depends on the trading style. It also depends on the currency you’re trading with: profitability is higher with certain currencies at certain times of the day, but the same currencies yield losing trades at different times.

There is more to profitability than timing. Here are 4 patterns related to forex profitability. These are all based on hard facts accumulated by FXCM for its US clients.

FXCM is a large US forex broker with significant global operations, so the data here is significant.

  • Forex Traders with FXCM were right on their trades more than 50% of the time.  Anyone would say that is a great statistic.  Does that mean they were profitable on their account? No, traders lose more money on losing trades than they win on winning traders.  A simple fix to that is traders should be using stops and limits to enforce a risk/reward ratio of 1:1 or higher.
  • Most forex traders are range traders – that means that they don’t wait for a breakout. The more success in range trading was done during Asian trading hours, when movements are are more limited to ranges. It’s important to remember that the opening session of the week is more volatile than all the rest that follow.
Profitable Trades By Currency Pair
  • The third most common mistake traders made is trading with too much leverage. Traders should take their account equity and multiple it by the effective leverage target and they will know their maximum account exposure before entering a trade. High volatility + high leverage are usually a recipe for wiping out the account.
Forex Profitability by Account Equity
  • European and North American Trading Hours tend to have the most volatility.  We’ve seen that trading on trade breakouts tend to be more successful trades during that time. If you’re stalking on breakouts, then these volatile sessions (and especially the overlap) are the best times for you.

Forex Profitability by Hour of Day

Further Reading: Top 5 Characteristics of a Successful Forex Trader

Full disclosure: FXCM is an advertiser on Forex Crunch.

Get the 5 most predictable currency pairs

About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

13 Comments

  1. Pingback: Forex Profitability – 4 Points Based on Real Data | Forex Crunch | I F O R E X X I . C O M

  2. Mark Reardon on

    There is no mention here about trend trading which is trading in the drection of profit. Anything else is more than likely trading in the direction of losses. Even in choppy markets on long term time frames, there are almost always trends in some shorter time frame for the pair. There is market movement within market movement on different time frames something that 99% of traders are not even aware of. The old adage that ‘the trend is your friend’ still holds true. 4H and Daily should agree on direction.

    • Thanks Mark. I’ll ask FXCM, who provided the information, if they have data about trend trading.

  3. Hey Mark…trading with the trend can be quite a profitable concept but I am wondering…how do you define “trend?”

  4. Got news for you guys… FXCM doesn’t have a dam clue. All they want is your money , and once you put it in their bucket, they HATE to give it back.

    • Daniel. Its very simple. We’ll take a LONG example. You start at point A and price moves upwards to point B. It then say retraces a little to point C. In a trend Point c should always be above point A where you started. So you should see prices moving up steaadily rather than crossing back and forth. THe latter is a volatile or choppy market and you are likeley to lose money. Find another currency pair or another time frame where the same pair is trading. There are waves of the main trend in shorter time frames.

      • Thanks for the reply mark. I certainly have more respect for that definition of trend as opposed to any that uses a moving average.

        However, I cannot say that trading with the trend is the only way I should ever be trading.

        Some of the most explosive moves I’ve observed and traded have been “against” the trend (using one time frame to define a trend.)

        One such example was today’s Selling Setup on the EUR/USD at 30m chart at 6:30AM (Closing time.) Certainly using the ABC definition of trend, the market was in trend up mode (using only the 30m), yet a counter trend setup led to the cleanest move of the day.

        Some use a larger time frame to define the trend, such as a 4hr, 6hr, daily, etc…..I only wanted to bring today’s example to the table to show what is possible trading “against the trend.”

        • I agree, certainly there are opportunities to make huge profits against the trend. I’m talking about a good general rule. Also, a trend is always followed by a correction and I let that play out before entering the market again in that pair. A correction can be a complex correction and last some time, but it is followed by another trend. You can also even trade the correction because it can be represented by a trend on a smaller time frame. You just need to find it. After I changed to looking only for trends, and ignoring everything else, my risk reward ratio dramatically improved.

    • Unfortunately when you start trading forex you become a client of the forex industry. That means you are a potential customer of scam artists who claim they have trading systems that willdouble your money in a month etc or EAs that will trade while you sleep to make you rich.Those EAs may work well for a while until there are extreme market conditions and they will blow out your account. There are no exceptions every EA will eventually leave you with nothing. Those guys selling worthless systems are interested in selling their systems they are never successful traders Never take notice of a broker when it comes to forex training. They have their own agenda. They dont like trend trading as trades are opened much less frequently and they make less money. They will never show you how to be truly profitable and consistent. If traders would only follow trending markets and stay out if there is no trend, that alone would their results from being mediocre to phenomenally successful.Remember that the very best of brokers are still great white sharks that want to feed on you.

  5. I am a licensed currency fund manager and I use the Scott Schubert method exclusively. My advice to you is to look up his name or ForexMastermind on Google. It might save you years of despair.

  6. Trading Market Online on

    I completely agree on the last statement that breakouts is better to follow in the beginning of the US session. My EA results show that after a breakout occured.. it is necessary to keep the trade alive for 24 hours or so