Understanding the London Open

In the previous article we focused on 30 minute price movements on EURUSD between 2 and 4 am EST. Also, we analyzed pullbacks of hourly highs and lows. In this article, we will compare price movements during the London open with price movements during the closing hour of the London session (10-11 am EST). Then we will analyze 30 minute and hourly price movements on GBPUSD between 2 and 4 am. And finally, we will run a linear regression on the London session candle (GBPUSD close-open price) with the London open candle as the predictor (independent) variable. Note: Range =High - Low Price and Candle =Absolute Value of Close - Open Price Figure 1 is comparing price movements during the opening hour (2-3am EST) of the London Session with those during the closing hour (10-11amEST) of the London Session. Figure 2 includes hourly volatility analysis from two data sets: 2001-2011 and 2008-2011. Figure 3 includes 30 minute volatility analysis from 2 to 4 am EST on GBPUSD from 2008-2011. Figure 4 includes a linear regression with GBPUSD London Session as the dependent variable and bear candles greater than or equal to 15 pips during the London Open as the predictor variable. The regression results indicate that there is a statistically significant negative relationship between 2-3 am candles that move down and close 15 or more pips and the London session as a whole. However, the low R squared figure indicates that this one predictor variable does not explain much of the total variation in the London Session as a whole. Figure 5 includes a linear regression with GBPUSD London Session as the dependent variable and bear candles greater than or equal to 30 pips during the London Open as the predictor variable. The regression results indicate that there is a statistically significant negative relationship between 2-3 am candles that move down and close 30 or more pips and the London session as a whole. Although the R squared figure in this regression model is higher than that in Figure 4, it is not large enough to indicate that this one predictor variable explains any significant portion of the total variation in the London Session as a whole. Also, there were only 45 observations in this data set, which is a relatively small sample for making statistical inferences. Additional regressions substituting in different time windows for the London Open predictor variable might yield a totally different coefficient. Regressions with bull London Open candles indicated linear relationships that were statistically insignificant and therefore were not included in this report. Key Findings: y For EURUSD, the close of the London session (10-11 am EST) was on average, 47% more volatile than the London Open (2-3am EST). For GBPUSD, the average price range during the London Open post 2008 was up more than 40% compared with pre-2008, while the average candle (absolute value of the close-open) was up only 30% Amongst GBPUSD M30 sessions between 2 and 4 am EST, the 3-3:30 am EST session was the least volatile with regards to mean range, mean candle, and Kurtosis. Our linear regressions results, although very modestly, indicate that when price moves down 30 or more pips from 2-3am EST, price will then reverse and then move up for the remainder of the London Session. It should be noted that linear regression is not the most robust way to analyze price data.

Figure 1: EURUSD 2008-2011 Open vs Close 2-3 am vs 10-11 am Mean Standard Error Median Mode Standard Deviation Sample Variance Kurtosis Skewness Range Minimum Maximum Count Confidence Level 95.0%

Range open close 21.0 31.7 0.4 0.6 18.0 27.0 17.0 22.0 13.7 17.0 186.8 289.1 14.4 7.9 3.0 2.1 136 144 3 7 139 151 928 929 0.88 1.09

open 10.1 0.4 7.0 1.0 10.7 113.8 15.9 3.1 100 0 100 928 0.69

Candle* close 15.7 0.5 11.0 1.0 15.8 250.4 10.1 2.4 144 0 144 929 1.02

*Absolute value of Close Price minus Open Price

Figure 2: H1 GBPUSD 2001-2011 Mean Standard Error Median Mode Standard Deviation Sample Variance Kurtosis Skewness Range Minimum Maximum Count Confidence Level 95% GBPUSD H1 2008-2011 Mean Standard Error Median Mode Standard Deviation Sample Variance Kurtosis Skewness Range Minimum Maximum Count Confidence Level 95% Range 2am 16.7 0.2 14.0 6.0 12.9 167.4 28.5 3.8 173 2 175 2737 0.48 Range 2am 23.2 0.5 20.0 16.0 16.5 273.3 23.8 3.8 173 2 175 928 1.06 Range 3am 14.9 0.2 12.0 5.0 12.1 147.1 21.6 3.4 148 1 149 2737 0.45 Range 3am 21.3 0.5 17.0 16.0 15.0 223.9 14.0 2.9 145 4 149 929 0.96 Candle 2am 8.8 0.2 6.0 1.0 9.5 90.9 23.8 3.4 141 0 141 2737 0.36 Candle 2am 11.5 0.4 8.0 1.0 12.2 148.0 21.0 3.4 141 0 141 928 0.78 Candle 3am 7.6 0.2 5.0 2.0 8.7 75.0 27.5 3.8 126 0 126 2737 0.32 Candle 3am 10.3 0.4 7.0 2.0 10.8 116.2 12.0 2.7 104 0 104 929 0.69

Figure 3: 2008-2011 GBPUSD Volatility Analysis Mean Standard Error Median Mode Standard Deviation Sample Variance Kurtosis Skewness Range Minimum Maximum Count Confidence Level 95.0%

2-2:30am Range Candle 16.8 8.2 0.4 0.3 14.0 6.0 14.0 1.0 11.9 9.3 141.5 85.9 20.4 37.3 3.4 4.4 140 125 2 0 142 125 928 928 0.77 0.60

2:30-3:00 AM Range Candle 15.2 8.0 0.4 0.3 13.0 6.0 10.0 1.0 11.9 8.7 142.1 75.5 55.6 48.1 5.4 4.6 169 132 1 0 170 132 928 928 0.77 0.56

3-3:30am Range Candle 14.7 7.4 0.3 0.2 12.0 5.0 7.0 1.0 9.8 7.5 95.5 56.5 6.8 8.5 2.2 2.4 69 62 2 0 71 62 929 929 0.63 0.48

3:30-4am Range Candle 15.1 7.7 0.4 0.3 12.0 6.0 8.0 2.0 12.3 8.9 151.4 80.1 26.6 17.7 4.0 3.5 147 87 2 0 149 87 929 929 0.79 0.58

Figure 4: GBPUSD London session as dependent variable, London open (bear candles >=15 pips) as predictor
Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df Regression Residual Total 1 197 198 SS 106237 5210053 5316290 MS 106237 26446.97 F 4.016983 Significance F 0.046414 0.141362 0.019983 0.015009 162.6252 199

Coefficients Intercept 2ambears>=15 -44.788 -1.67297

Standard Error 24.10157 0.834715

t Stat -1.8583 -2.00424

P-value 0.064618 0.046414

Lower 95% -92.3182 -3.31909

Upper 95% 2.742224 -0.02685

Figure 5: GBPUSD London session as dependent variable, London open (bear candles >=30 pips) as predictor
Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df Regression Residual Total 1 43 44 SS 392982.9 2028724 2421707 MS 392982.9 47179.63 F 8.329503 Significance F 0.006078 0.402833909 0.162275158 0.142793185 217.2087307 45

Coefficients Intercept 2ambears>=30 -238.1840761 -4.876296533

Standard Error 80.19321 1.689587

t Stat -2.97013 -2.88609

P-value 0.004855 0.006078

Lower 95% -399.909 -8.28367

Upper 95% -76.4591 -1.46892