The shape of the day: a double hump

[Fairman]

The shape of the day: a double hump

Volatility across the 24-hour day isn't flat or a single bump. For major pairs, it has a double hump. The first rise comes with the London open, the second with New York, and a dip appears between them. The overlap in the early New York morning usually has the highest activity of all.

After the London close, activity falls toward a trough in the late New York evening and Asian night. A small bump appears at the Tokyo open, and the cycle repeats.

The shape varies by pair. USDJPY has a visible Tokyo hump. AUDUSD has more Asian activity. EURGBP is concentrated in London hours.

Spreads mirror the pattern in reverse: tightest at the busiest hours, widest at the troughs.

For scalpers, the curve is a map of where the edge is cheapest. The same strategy faces very different costs at different points.

Building the curve for each pair traded is easy. Compute the average range per fifteen-minute block over several months, and plot it. The result is the market's timetable.

Positions of strategies on that timetable, including which sessions they trade and which they skip, can be compared against the curve to check whether effort is going where the market is alive.

Where do the strategy's trades sit relative to the pair's volatility curve across the day?