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How To Predict Market Action From The 1st Hour of Trading Pt 4



July 19, 2012 – Comments (2) | RELATED TICKERS: SPY , DIA , QQQ

If you've missed my previous posts this week on predicting Market Action from the 1st hour of trading, I'd read these the first three posts as well with this one. 

Predicting Markets Part 1

Predicting Markets Part 2

Predicting Markets Part 3

So far, we've talked primarily about trending days and what kind of early morning action brings them about, and what can be expected throughout the rest of the day. But lets change things up a bit, and let's look at what happens when the market is direction-less and what we can expect before it happens. 

FIrst-off, these types of trading days tends to wear traders out, because whether you are long or short, nothing seems to really stick, and often times traders will see profits come and go, with no chance at capturing them, and that leads to this kind of behavior: 

Here's a video example.  

Most people will way watch the first hour of trading and when you get a break of the highs or lows of the day, that is going to be the direction the market will trade in. While that isn't bad advice per se, what you'll often see on these direction-less days is a break of the highs or lows and a sharp reversal right after that. Once you see this happen, and I do mean a sharp reversal within 20-30 minutes after the initial breakout/down, then you need to moderate your expectations for the day and begin looking at a far less mundane, topsy-turvey type of trading session. These days are often marked with constant sharp moves thoughout the day, the problem is that none of these moves last for very long before retreating back the opposite way. Low volume is characteristic. Consider comparing volume of the opening hour to previous hourly sessions for clues leading to a direction-less trading session. 

The Result: Day-traders tend to get chopped to pieces if the don't take gains as a trade is progressing in their favor. So have some low expectations for your trades - don't look for a homerun anywhere, and always expect reversals thoughout the day.

Here's the chart example.  

2 Comments – Post Your Own

#1) On July 19, 2012 at 11:40 PM, Speculatormaster (< 20) wrote:

Really Interesting,

I have follow all of these post of (How to predict the market in the first hour), but I think these work must be done by machines, understanding the market is not so easy.  Is interesting someone must try at least make some statistics, of this material you provide to see how accuracy have in the long term. (With advanced machines or at least create a program for record statistics of the first hour of trading in the markets, following your parameters :) )

Can anyone try it in simulation after all is only for the first hour and seem fun also?

Good Post, and just keep that good work

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#2) On July 19, 2012 at 11:45 PM, Speculatormaster (< 20) wrote:

On purpose, I hate the first hour of trading because is very unstable, my teachers, advice me never trade in the first hour for buy, only for sell old positions, :)

Them also teach me that the first hour of trading is just for watch the action, and reach conclutions.

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