Posted on Thursday, April 20, 2017 at 12:29 PM
Fundamentals trump technicals. Economic and supply and demand reports often alter sentiment and are frequently responsible for changing trends or extending them. When there is no data to affect a market, many traders rely on technical signals to interpret momentum, pinpoint entry /exits levels and define risk.
In this issue, we will focus on market turns and how to spot when reversals are likely. During rallies, markets tend to make lows very early in the day and highs are often seen late in the session. During declining trends, highs tend to be made early and lows late in the day. So, when this type of price action ceases, anticipate a pause in trend or possibly the end of one.
Markets tend to consolidate before reversals and there are subtle changes that often telegraph change. The most liquid times of the trading day are during the first hour and last hour. It is during these times that big ticket orders are often executed, in order to be discrete.
In the Japanese Yen chart below the first hour of regular trading hours is highlighted in a yellow rectangle. Note that during the rally, lows were made very early in the day session. Also, note when the market turned down highs were made in the first hour of the session.
When markets are ready to turn they frequently leave clues. A high or low made during the most volatile time of the day is often a subtle change, a change nonetheless.
Senior Options Instructor