Backtests and statistics of five different futures contracts reveal that most of the price action is random throughout the trading day. However, by implementing one or two extra variables, we find some potential trading edges or strategies.
Let’s go straight to our backtesting and evidence:
Which trading hour is the best?
Backtests and statistics of five different futures contracts reveal that most of the price action is random throughout the trading day. However, by implementing one or two extra variables, we find some potential trading edges or strategies. In order to find the best trading hour, we look at five different futures contracts: S&P 500 (ES), USD/CHF, the oil price (CL), gold (GC), and silver (SI). Our futures data start in July 2010 or July 2011.
Which trading hour is the best? Backtest no. 1
This is the best trading hour. In test no. 1 we buy at the open every hour and sell at the close of the trading day. The close is defined as the close of the “regular” trading hours local time.
For example, the S&P 500 futures contract is traded in Chicago and we defined the open at 0830 local time and the close at 1500.
For gold, oil, and silver the open is 0930 and the close is 1600 because it trades in New York.
All of the contracts trade much longer (and earlier), but for convenience, we defined the open and close like above.
We test one-hour intervals: 0830, 0930…..1530. Thus, the last time interval is only 30 minutes and we only look at regular trading hours, not the 23-hour session.
We start by testing the oil WTI contract:
The first column shows the time when we enter the trade: 93 000 is 0930 and 123 000 is 1230 etc.
As you can see from the table, the average percentage gains are small.
In the gold price the average gains are practically zero:
Just as in gold, it seems to be complete randomness in the silver contract throughout the trading day:
The bullish market since the financial crisis in 2008/09 has created a positive drift from the morning until the close (in addition to the overnight edge):
Perhaps as expected, the USD/CHF rate seems pretty random:
Which trading hour is the best? Backtest no. 2
We make a second backtest, but we only look at the returns per hour during the trading day.
If you buy the S&P 500 at the open (0830) you sell one hour later (0930) and so on:
A pretty non-existent pattern in the S&P 500. However, you might want to check out our older article about the return during the last hour of trading.
Forex is mainly a relative game between two assets and seems to be pretty random:
The same goes for oil:
Not much to cheer about in gold:
And silver performs very much like gold (much of the time):
Both of the backtests reveal that there are no tradeable patterns. That is, of course, expected. If it was any, it would be “arbed” away a long time ago.
This backtest and optimization was done in Amibroker. If you like to have the code for the test plus all the other code for the free trading strategies we have made over the last 10 years, you can order the code here:
Additionally, you get a lot of Tradestation code included. The test above can be done in just a few minutes and doesn’t require much code or coding competence. You can learn coding in our Amibroker course.
Which Trading Hour Is The Best?
The tests done in this article might point to randomness, but many alternatives exist to find profitable trading edges in the same data.
For example, we have this equity curve in the silver contract that enters at a certain time and exits a few hours later during the same trading day:
In addition to the time, we added one variable. The average is 0.21% assuming a 100% margin. There are almost 300 trades, the win rate is 60% and the average winner is twice as big as the average loser. The profit factor is 3.
Or what about this one in gold, also by adding just one variable in addition to the time criteria:
The average gain per trade is 0.1% unleveraged over 600 trades.
And we have one in oil as well, also by adding one variable:
And we bring you the last chart of the day, in oil, that holds overnight (obviously a potential short strategy):
Which trading hour is the best? Conclusion
Almost all price action intraday is randomness and noise, and it’s impossible to determine what trading hour is the best.
That said, we believe you can take advantage of some structural inefficiencies based on time and seasonality as the last four charts indicate.
What is the best trading hour for various futures contracts?
To explore the analysis of S&P 500 (ES), USD/CHF, oil (CL), gold (GC), and silver (SI) during different trading hours; The analysis considers the performance of each contract at one-hour intervals, starting from 0830 to 1530, shedding light on potential trading opportunities.
Are there any discernible patterns in the S&P 500 market throughout the trading day?
To analyze the bullish market trend since the financial crisis and its impact on trading hours; The article uncovers a positive drift in the S&P 500 from morning until close, discussing the implications of the bullish market trend that originated during the 2008/09 financial crisis.
Can structural inefficiencies be exploited based on time and seasonality?
Structural inefficiencies offer insights into methodologies for identifying patterns beyond the apparent randomness, emphasizing the importance of recognizing subtle but exploitable trends. While the overall intraday price action appears random, there may be opportunities hidden within structural inefficiencies influenced by time and seasonality.