The 60-Minute Rule of Trading

Posted on Thursday, February 13, 2020 at 10:45 AM

Stock indexes continue to break barriers in response to positive economic data. The historic rise has also come with headwinds such as impeachment, coronavirus and conflict with Iran. The question on many traders’ minds is, what will prompt the next big downturn? The markets are sensitive to the spreading of the virus. As the number of infected people grows and the virus breeds outside China, confidence will likely wane. I wake up each day and immediately check the numbers and the impact the virus has had overnight. Each time the numbers rise unexpectedly, stocks typically take a hit and then recover within days.

When they recover there is a subtle response each time. The first and last hours of the day are critical moments. They are the highest volume times of the day and are historically the most liquid periods. Thus, professional traders are apt to be most active during those times. Some of the most reliable momentum reads come very early. For example, when stocks have opened sharply lower due to a surge in infestations, the low for the day is often made within the first hour of the session. This early response to cheap prices is a sign that professional traders are still bullish. During bull markets, daily lows tend to be made in the first hour of trade. While in bear markets, highs are frequently made early in the day. The second most liquid time of day is near the close. During a bull run there is often a buying spurt just before the close, and conversely sellers often get aggressive late in the day during a bear market.

With stocks at historic highs and no definable resistance areas, we must pay special attention to subtle changes during opens and closes. To time a reversal the first hour high/low may be a critical clue. Before a market heads down you may begin to see highs made early and lows late over a series of three to five days. Of course, when bottom picking, look for successive days where the low is made early and the high late. Timing the beginning or end of a trend is a tough task. However, if you study short-term price action and apply logic you are apt to become a better market timer.

John Seguin
Senior Futures Instructor
Market Mentor Mentoring, Inc.

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