KEY INTRADAY TIME PERIODS in the Stock Market
[Originally posted June 1999]
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, cycles, and related paradigms (as described in many books -e.g. "Pit Bull" by Marty Schwartz, Larry Williams' classics, 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 for a while and repeat like "Ground Hog Day", 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 time of day, but this one should be on everyone trader's checklist.
The big ones that come to mind for me are described below (times per Eastern time zone). I do not offer this as "the" roadmap to intraday time periods, as there are many variations and subtleties. However, in my experience for trading stocks, this is all you'll need to reach the point of diminishing returns. The Futures traders may need to use, (and generally do use) more granular, sophisticated time-of-day models. I learned a lot about this during my year of trading the S&P futures; many of the S&P Futures weekend seminars provide insights into the time periods.
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 Market Makers)
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 of course can be valuable to recognize early in the day.
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. [this usually happens, except on trend days... we often get flat and/or encourage our customers to avoid initiating new positions during the slow-moving, thin choppy doldrums period like we had Friday 5/25 - the second lowest-volume day of the year]
2:00-3:00 - a strong counter-trend move - a time when they let the so-called "Locals" (heavily-capitalized/leveraged/savvy market-makers in the Chicago futures pits) in the CME futures pits (OR, other evil market forces such as arbitragers, large hedge funds etc ;) have their fun (scores settled, runs on the shorts, surprise counter-trend moves, 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. [after the Bonds close, there is often a big reaction in the stock market as funds make decisions to change their stock/bond weighting, arbitrage exposure, etc]
3:30-4:00 The "real" scores (large buy and sell orders) 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 ISSUES (or sell). The big orders often show their true hand during this time period. [this happens frequently, although we haven't seen as much of it in 2001 as we did during the big selloff, and the preceeding Bull run].
There are many possible variations and variations that to this that can and do play out on any given day. It's certainly not as simple as up at time A, down at time B; otherwise, all the S&P Futures traders would be rich beyond their wildest dreams in a short time period, for one thing... and 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 |
