Tuesday, May 10, 2011
As I mentioned in a previous post, one of the main ingredients of success in constructing a profitable momentum trading strategy in Forex (and futures) is to pay attention to the entry and exit times. I haven't seen any good momentum strategy that has "time-translation invariance", i.e. works without reference to a fixed time of the day. The fixed time can refer to a benchmark level of the market (e.g. the previous close), or it can be the entry or exit time. (This is in contrast to mean-reverting strategies where the reference price can often be just a moving average.) A recent research paper (Hat tip: William) points to another example of such time-of-day effects in FX markets: a currency typically depreciates during its local trading hours.
Posted by Ernie Chan at 3:32 PM