Trading strategies largely belong to 2 camps: trend following or mean reversion. The win rate of a counter trend system increases in a range bound market. In this article, we want to determine which is the best currency pair to trade for range strategies, and which time of the day is best for such a strategy.

Which Pair to Trade?

The following graphs provide a simplified overview of recent price activity for different currency pairs and commodities. The Price Movement graph shows the extent and direction of price movement since the beginning of selected time period until current time (past 1 week as of this writing).

The High-Low Movement graph shows the extent of price fluctuation between the high and low prices during the same time period. This value is always positive and can be used as a simple measure of market volatility. This data shows that GBPUSD demonstrates the lowest volatility among the major currency pairs.

Which Time of the Day to Trade?

We reference the chart below taken from OANDA’s website. In periods when market ‘trading hours’ overlap, liquidity tends to increase because more traders are participating in the FX market. Outside of these overlaps, markets are quieter, as indicated by the blue dots below – Singapore time 02:00 hrs to 14:00 hrs. The hourly volume graph shows the historical level of trading activity on OANDA for all pairs.

Which MT4 Indicator to Use to Determine Volatility?

Based on the data from above, we determine that trading the GBPUSD during London Time 18:00 hours to 06:00 hours would be conducive for range traders. Let’s take a look at the 1 minute MT4 chart in such a trading session:

We plot the blue ATR line below the candlestick chart. ATR stands for Average True Range. The range or true range of a bar is the high minus the low. If the high of a bar was 1.3512 and the low was 1.3460, then the range of the bar is 1.3512 minus 1.3460, which is 52 pips.

ATR comes into play when you look at more than one bar. 14 is a common period used with ATR. What you're doing is taking the average of the ranges among 14 bars. Start with candle number 1, then take the range of candle number 2, and so on all the way to 14. The average of those ranges is the ATR. ATR is useful because it gives you an idea of how many pips one bar is likely to move.

In the above example, the ATR ranged from 0.6 pips to 8 pips. For comparison purposes, let’s take a look at the ATR range in the following trading session from London Time 06:00 hours to 18:00 hours, in the graph below. The ATR range was 0.9 pips to 10.5 pips, confirming a higher volatility in the more active trading session.

The first GBPUSD graph in the quieter session paints a ranging price movement, while the “noisier” trading session in the 2nd graph shows a clear downward trending momentum. Depending on which part of the world you live in, trading the quieter session may not be feasible since it clashes with your bedtime. In such a scenario, you can program an expert advisor to trade while you sleep!