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Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: Magnatizer who wrote (1233)	6/21/1999 11:42:00 PM
From: TraderAlan	Respond to of 18137

David, This article is a short piece of a long educational module I did last year. Some of it is theory and this abbreviated version simplifies the subject somewhat: TIME OF DAY - FIRST HOUR Closing markets seek equilibrium in stock supply and demand. But overnight activities upset this delicate balance, forcing volatile shifts in morning prices. Specialists calculate this initial imbalance through their order book, sometimes triggering a gap open. NASDAQ market makers communicate before the open by displaying outside pricing until the most aggressive members win the inside positions. In both venues, changing spreads seek the moving targets of opening demand and momentum. The opening surge may or may not ignite a subsequent trend. The first hour searches for a daily trend by forcing prices through a testing gauntlet. This process provides the road map for the floor to set subsequent pricing for their securities. The 3rd Bar Reversal often presents the first challenge. This test refers to the 3rd bar or candle of the 5-min S&P Futures contract, measured from the opening of the equity markets. This time zone also corresponds with 9:40am to 9:45am, the end of the 15-min delay built into retail access to market quotes. Painting price for this retail crowd ensures some additional volume for the market makers. But since this group can be the last paper in the door, other market forces may take over and (possibly) trigger a reversal. A second zone for opening trend reversal begins shortly after 10am. The strong expectation of this 35-min test becomes a self-fulfilling event. It also has tremendous value for short-term traders. Many day traders don't want to enter positions until early testing shows the trend they want to trade will remain intact. The 35-min test allows them to get into the market while volatility remains high. Trends that survive this 35-min reversal test often continue throughout the day. This tendency elicits another unique event of the first hour. The last 15 minutes of this important period trigger capitulation by the losing side. Price movement tends to the same direction as the winning trend for the day and can be quite strong as day traders enter their first commitments. The first hour's activity sets a theme that will likely repeat itself frequently during the trading day. Market participants reveal their strengths and weaknesses in this testing gauntlet. Volume then drops sharply, often constricting price movement and setting range resistance difficult to penetrate until one side gathers new momentum. Alan

To: Magnatizer who wrote (1233)	6/21/1999 11:45:00 PM
From: -	Read Replies (1) \| Respond to of 18137

<"Times of Day", for Stock Trading> David J, Yes, you are on to something important. I agree, in that there are definitely timeframes that have been identified as key potential "turning points" in the market, which are worth knowing about and making use of. The Futures traders (and many stock traders) have made nearly a science of studying this and creating different time-of-day rules and paradigms (e.g. "Pit Bull", etc...). Unfortunately there are really no consistent direct correspondences or mappings between time of day and market direction. Occasionally the market will lock into a pattern like the one you describe, but as soon as it is recognized, almost by definition that trading pattern changes and/or disappear. The more important thing to know is WHEN the market MIGHT be likely to change, and WHY. Of course, there are many other things that can bring that on besides TOD, but this one is on my short-list as a trader. The big ones that come to mind for me are described below (times per Eastern time zone). I do not offer this as "the truth" or something that can't be improved upon, just to show how I see it; and I'm still learning. I could offer more times and get more concise, but in my experience for trading stocks, this is all you'll need to reach the point of diminishing returns. The Futures traders need to use, and do use, more granular, sophisticated time-of-day models. [This is an area where I learned a lot during my year of trading the S&P futures, which does help my stock trading.] 9:30-10 "The Opening Period" - subject of a lengthy book to discuss properly. Also known as "Amateur Hour" (due to preponderance of market orders from public being filled to the best advantage of MM's) 10-10:30 "Reveral Hour" - the pros generally try bring the market in, one way or another, the opposite direction to clean up their positions resulting from buying/selling to the public (e.g. strong first half hour => they are short, must bring stocks in to cover). If the market opens strong and they can't bring them in during this critical timeframe, then you could likely be looking at a "trending" day, which is quite valuable to recognize early in the day (like today). 10:30-2:00 Sometime in the next 60-90 minutes: "the mid-day doldrums" (usually) arrive. Flat trading during NYC lunch - daytraders typically give back a lot during this period, buyers out to lunch, trading ranges favor MM's. Good to avoid, many times. I often go out for a run during this period. 2:00-3:00 - a strong counter-trend move - a time when they let the boys & girls in the futures pits have their fun (scores settled, etc.). Often the futures will drag stocks around by the nose during this period. 3:00 The Bond market closes. A pivotal time - often if the Bonds close in stock's favor, the market will start to move more when the Bonds close. Or, the opposite. 3:30-4:00 The "real" scores (actual buying and selling) are settled. Professional buying/selling sets in; in many ways this period is "the real day" in the stock market. Institutional buy/sell orders have to get filled, so they have to stop nibbling/faking it, and get the job done. They heck with VWAP (Volume-Weighted Average Price), playing MM games, etc just BUY THOSE PIGS (or sell). The big orders often show their true hand here. This happened today in the internets, but it occured a little earlier before the close. There are many possible variations and refinements to this. But it's not as easy as up at time 1, down at time 2; otherwise, all the S&P Futures traders would be rich beyond their wildest dreams in a short time period... we would have no Bus Drivers, Farmers, students, etc. Good stuff to study, though -- all part of learning how to "read the market environment" --a key skill. Good trading, -Steve